Minimum Quality Standard and Protectionism

We studied the protectionist character of a minimum quality standard (MQS). We show that in the fixed cost model where two firms, one local and one foreign, compete in a local market, the implementation of a MQS on the local market is a protectionist political only if the local firm supplies the lower quality, whatever the type of competition (Cournot or Bertrand) and the technology differential between the firms.Minimum Quality Standard, Protectionism, Endogenous Quality

Forward Vertical Integration: The Fixed-Proportion Case Revisited

Assuming a fixed-proportion downstream production technology, partial forward integration by an upstream monopolist may be observed whether the monopolist is advantaged or disadvantaged cost-wise relative to fringe firms in the downstream market. Integration need not induce cost-predation and the profits of the fringe may increase. The output price falls and welfare unambiguously rises.

Consumer Uncertainty about which Firm Sells the High Quality: on the Slow Penetration of Some Credence Goods

In this paper, we analyze cases where consumers are aware of the existence of two qualities but do not know which firm sells the good one. We show that if the production of the high quality requires higher cost, its producer may be severly disadvantaged, even if the additional utility fully justifies the extra cost. We even show cases where all consumers beliefs are in favour of the efficient high quality producer, yet it is its inefficient rival that monopolizes the market! This result explains the slow penetration of some credence goods like environementally friendly products, organic vegetables, etc. It also makes an urgent call for labelling this kind of products.Incomplete information, quality, asymetric costs

Minimum Quality Standards and Equilibrium Selection with Asymmetric Firms

In a vertically differentiated market with cost asymmetries, the risk dominance criterion selects the equilibrium where the high quality is produced by the efficient firm. We show that a sufficiently high Minimum Quality Standard reverses equilibrium selection. Hence, MQS may be used in order to increase a domestic firm's profit at the expense of a more efficient foreign rival. This produces higher domestic and lower world welfare. Since the protectionist impact of MQS comes through equilibrium targeting rather than directly affecting equilibrium outcomes, it cannot be easily detected.Vertical product differentiation, Minimum quality standards, Equilibrium selection, Protectionism

Forward Vertical Integration: The Fixed-Proportion Case Revisited

Assuming a fixed-proportion downstream production technology, partial forward integration by an upstream monopolist may be observed whether the monopolist is advantaged or disadvantaged cost-wise relative to fringe firms in the downstream market. Integration need not induce cost predation and the fringe firms’ margin may even increase. The output price falls and welfare unambiguously rises.Vertical integration; cost predation; cost asymmetries

Credence goods, experts and risk aversion

The existing literature in expert-customer relationship concludes that when: i) consumers are homogenous, ii) consumers are committed with an an expert once this one made a recommendation, and iii) the type of treatment provided is verifiable, an expert finds optimal to serve efficiently his customers. This work shows that the previous result may not occur when consumers are not risk-neutral. Our result, that holds in a monopoly setting and under Bertrand competition, suggests that risk averse consumers have more likely to be mistreated by experts.CREDENCE GOODS;EXPERT SERVICES;RISK AVERSION

Downstream labeling and upstream price competition

The paper analyses the economic consequences of labeling in a setting with two vertically related markets. Labeling on the downstream market affects upstream price competition through two effects : a differentiation effect and a ranking effect. The magnitude of these two effects determines who in the supply chain will receive the benefits and who will bear the burden of labeling. For instance, whenever the ranking effect dominates the differentiation effect, the low quality upstream firm loses from labeling while all downstream actors are individually better off. By decreasing the low quality input price, the label acts then as a subsidy which assures an increase of the downstream market welfare. This analysis furthers our understanding of the economic consequences of the public labeling in cases like restaurants or GMOs.LABEL;IMPERFECT CONSUMER INFORMATION;VERTICAL PRODUCT DIFFERENTIATION;VERTICAL RELATIONS;REGULATION

Seemingly competitive food retail regulations : who do they really help ?

The food distribution and retail sectors in Quebec are highly concentrated and integrated as large food distributors are also involved in food retailing. As such, they are competing with small grocery and convenience stores they sell inputs to. A review of the industry suggests that there are important economies of size in distribution, but that smaller stores offering convenience face a more inelastic demand. Concerns over the survival of smaller stores in Quebec have motivated two types of regulations. The first type aims at reducing the cost advantage of dominant retailers by restricting the number of employees that they are allowed to use during specific time periods. The second type restricts retail prices. We develop a simple model capturing the main features of the industry to ascertain the impact of these regulations on retail and wholesale prices. Our results suggest that these regulations reduce welfare and may induce both tighter margins and lower surplus for small retailers.

Investigating Non-Linearities in the Relationship Between Real Exchange Rate Volatility and Trade

Production and marketing lags in agri-food supply chains force competitive primary producers and food processors to commit to output targets before prices and exchange rates are realized. A theoretical model with one processor and many price-taking primary producers is developed to show that an increase in the volatility of the export price generally increases exports under risk neutrality. Furthermore, relaxing the assumption that the processing firm is risk neutral introduces non- linearities in the relationship between exports and export price volatility. This relationship is empirically investigated using the flexible non-linear inference framework developed by Hamilton (2001). The theoretical model provides the foundation for empirical bilateral export equations for Canadian pork exports to the U.S. and Japan. The empirical investigation supports the hypothesis that export price volatility has statistically significant non-linear effects on Canadian pork exports.Exchange rate volatility, non-linear flexible inference, production lags, pork exports

On the use of labels in credence goods markets

We analyze credence goods markets in the case of two firms. Consumers know that the quality of the good varies but do not know which firm is of high quality. First, we show that the high quality producer may be unable to monopolize the market, or even to survive in some cases, in situations where it is efficient and trusted by all consumers. Second, although a label restoring full information improves welfare, it may also reduce both firms? profits by intensifying competition. Since even the high quality producer may not wish to label its product, in such cases the label must be mandatory. Third, an imperfect label which moves everybody?s beliefs closer to the truth without restoring full information may produce adverse results on market structure and welfare, either by increasing or by reducing the variance of beliefs.CREDENCE GOODS;INCOMPLETE INFORMATION;QUALITY;LABEL;DIFFERENTIATION