Reference

Zohra Bouamra-Mechemache, and Yu Jianyu, Production Standards, Competition and Vertical Relationship, TSE Working Paper, n. 13-417, April 2013.

Abstract

This paper investigates the collective choice of production standards by farmer and pro- cessor groups within a vertical food supply chain, taking into account their competition behaviors. In a context in which raising standards cannot translate into a direct price premium to consumers, we develop a general model to analyze the strategic motive of us- ing standards to limit supply and shift rents among farmers and processors in the vertical chain. We find that such a motive depends on farmers’ cost structure, final demand char- acteristics, and processors’ competition patterns. In particular, farmers prefer a stringent standard when the standard involves creating greater diseconomies of scale in production and when the demand for the final product is inelastic. However, processors only prefer a stringent standard in the presence of oligopsony competition.

Keywords

Production standards; Vertical relationship; Imperfect competition; Technology choice

JEL codes

  • L13: Oligopoly and Other Imperfect Markets
  • Q13: Agricultural Markets and Marketing • Cooperatives • Agribusiness

Zohra Bouamra-Mechemache, and Jianyu Yu, Production Standard, Competition & Vertical Relationship, European Review of Agricultural Economics, 2015.