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Reputations, Market Structure, and the Choice of Quality Assurance Systems in the Food Industry

Author

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  • Miguel Carriquiry
  • Bruce A. Babcock
Abstract
Participants in a supply chain of agricultural value-added products face significant challenges. Many of the costly distinctive traits are difficult (if not impossible) to observe even after consumption. A complicating factor, addressed here, is that in some circumstances delivered quality can only be imperfectly learned and/or affected stochastically by producers. In order for markets for these goods to arise, firms touting the quality of the product need to be trusted. In response to these challenges, new (and diverse) quality assurance systems (QASs) that facilitate the acquisition and flow of information about agricultural and food products are being put in place. A repeated-purchases model is developed to explore the fundamental economic factors that lie behind the choice of different QASs and their associated degrees of stringency by firms. Differences in the quality discoverability of a sought-after attribute, market structure, attractiveness of a market, nature of reputations, and the value placed in the future are among the factors contributing to the implementation of widely diverse systems across participants in different markets. Close attention is paid to the role of reputations in providing the incentives for firms to deliver high-quality goods. We model three different scenarios-monopoly, duopoly with firm-specific reputations, and duopoly with industry-wide reputations-and compare the resulting welfare of processors and their customers. We also provide a rationale for the branding efforts of many firms to distinguish their products along the supply chain.

Suggested Citation

  • Miguel Carriquiry & Bruce A. Babcock, 2004. "Reputations, Market Structure, and the Choice of Quality Assurance Systems in the Food Industry," Center for Agricultural and Rural Development (CARD) Publications 04-wp377, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    • Handle: RePEc:ias:cpaper:04-wp377
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    Cited by:

    1. Rouviere, Elodie & Soubeyran, Raphael, 2008. "Collective Reputation, Entry and Minimum Quality Standard," Economic Theory and Applications Working Papers 6325, Fondazione Eni Enrico Mattei (FEEM).
    2. Minten, Bart & Singh, K.M. & Sutradhar, Rajib, 2013. "Branding and agricultural value chains in developing countries: Insights from Bihar (India)," Food Policy, Elsevier, vol. 38(C), pages 23-34.
    3. Andreas Tsakiridis & Michael Wallace & James Breen & Cathal O'Donoghue & Kevin Hanrahan, 2021. "Beef quality assurance schemes: Can they improve farm economic performance?," Agribusiness, John Wiley & Sons, Ltd., vol. 37(3), pages 451-471, July.
    4. Minten, Bart & Singh, K.M. & Sutradhar, Rajib, 2011. "Branding in food retail of high value crops in Asia: Case of Makhana from Bihar (India)," MPRA Paper 54334, University Library of Munich, Germany, revised 31 Jan 2011.
    5. More, S.J. & Marchewka, J. & Hanlon, A. & Balzani, A. & Boyle, L., 2021. "An evaluation of four private animal health and welfare standards and associated quality assurance programmes for dairy cow production," Food Policy, Elsevier, vol. 105(C).
    6. Bontemps, Christophe & Bouamra-Mechemache, Zohra & Simioni, Michel, 2012. "Quality Labels and Firm Survival in the French Cheese Industry," IDEI Working Papers 741, Institut d'Économie Industrielle (IDEI), Toulouse.
    7. Tiago Teixeira da Silva Siqueira & Danielle Galliano & Geneviève Nguyen & Ferenc Istvan Bánkuti, 2021. "Organizational Forms and Agri-Environmental Practices: The Case of Brazilian Dairy Farms," Sustainability, MDPI, vol. 13(7), pages 1-19, March.
    8. Vera Sadovska & Lena Ekelund Axelson & Cecilia Mark-Herbert, 2020. "Reviewing Value Creation in Agriculture—A Conceptual Analysis and a New Framework," Sustainability, MDPI, vol. 12(12), pages 1-22, June.
    9. Baniak Andrzej & Grajzl Peter, 2013. "Equilibrium and Welfare in a Model of Torts with Industry Reputation Effects," Review of Law & Economics, De Gruyter, vol. 9(2), pages 265-302, October.
    10. Rat-Aspert, Olivier & Weldegebriel, Habtu T. & Stott, Alistair W. & Fourichon, C., 2008. "Managing animal health status information in the cattle market," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44064, European Association of Agricultural Economists.
    11. John Romley & Tiffany Shih, 2017. "Product safety spillovers and market viability for biologic drugs," International Journal of Health Economics and Management, Springer, vol. 17(2), pages 135-158, June.
    12. Minten, Bart & Singh, K.M. & Sutradhar, Rajib, 2010. "The makhana value chain and the fast emergence of branding in food retail: Evidence from Bihar (India)," MPRA Paper 54344, University Library of Munich, Germany, revised 14 Jan 2010.
    13. Gelaw, Fekadu & Speelman, Stijn & Van Huylenbroeck, Guido, 2016. "Farmers’ marketing preferences in local coffee markets: Evidence from a choice experiment in Ethiopia," Food Policy, Elsevier, vol. 61(C), pages 92-102.
    14. Rouviere, Elodie & Soubeyran, Raphael, 2008. "Collective Reputation, Entry and Minimum Safety Standard," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44465, European Association of Agricultural Economists.
    15. Jianyu Yu & Zohra Bouamra-Mechemache, 2016. "Production standards, competition and vertical relationship," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 43(1), pages 79-111.
    16. Pu-Yan NIE & You-Hua CHEN, 2014. "A general equilibrium analysis of food industry considering the food quality," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 60(7), pages 301-308.
    17. Minten, Bart & Assefa, Thomas & Hirvonen, Kalle, 2017. "Can Agricultural Traders be Trusted? Evidence from Coffee in Ethiopia," World Development, Elsevier, vol. 90(C), pages 77-88.
    18. Adalja, Aaron & Lichtenberg, Erik, 2018. "Produce growers’ cost of complying with the Food Safety Modernization Act," Food Policy, Elsevier, vol. 74(C), pages 23-38.
    19. Minten, Bart & Singh, K.M. & Sutradhar, Rajib, 2011. "The rapid emergence of branding in food retail in Asia: Insights from Bihar (India)," MPRA Paper 54337, University Library of Munich, Germany, revised 14 Jan 2011.
    20. Sadovska, V., 2018. "Sustainable value creation in the agricultural sector. A literature review," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 276984, International Association of Agricultural Economists.

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