Several months ago I posted a note about how I thought the organic
standards might impact marketing. I think I said something to the effect
that USDA standards would only establish the "mimimum or baseline organic
quality." For those that are interested, here is an interesting abstract on
the topic.
--- begin forwarded text
"Strategic Quality Choice with Minimum Quality Standards"
BY: STEFAN LUTZ
Union Bank of Switzerland
Economic Research
THOMAS LYON
Indiana University
JOHN MAXWELL
Indiana University
Paper ID: CEPR Discussion Paper No. 1793
Date: January 1998
Contact: STEFAN LUTZ
Email: Mailto:stefan.lutz@ubs.com
Postal: Union Bank of Switzerland
Economic Research
Bahnhofstr. 45
CH-8021 Zurich, SWITZERLAND
Phone: +41-1-234-6112
Fax: +41-1-234-3245
Co-Auth: THOMAS LYON
Email: Mailto:tlyon@indiana.edu
Postal: Indiana University
Bloomington, IN 47405 USA
Co-Auth: JOHN MAXWELL
Email: Mailto:jwmax@indiana.edu
Postal: Indiana University
Bloomington, IN 47405 USA
Hard Copy Paper Requests:
CEPR Discussion Papers are charged at the rate of 5(British
Pound Sterling)/$8(US Dollars)per paper. Payment in advance is
requested. To order papers contact CEPR Discussion papers, 90-98
Goswell Road, London EC1V 7DB, UK. Phone:(44) 171 878 2900.
Fax:(44) 171 878 2999. Mailto:orders@cepr.org
ABSTRACT:
In many markets, governments set minimum quality standards while
some sellers choose to compete on the basis of quality by
exceeding them. We analyze this phenomenon using a model of
vertical product differentiation, interpreting quality as an
"environmental friendliness" characteristic fully internalized
by the consumer. A standard raising minimum quality then reduces
maximum pollution per unit of products sold in the market. In
the duopoly case, this leads to increased product qualities,
increased quantities sold of both products, and reduced total
pollution. As a result, total welfare increases. However,
industry profits fall due to increased competition caused by
reduced quality differentiation. If the high-quality firm can
commit to a specific quality level before regulations are
promulgated, it can induce the regulator to weaken its
standards, with the result that welfare is reduced.
--- end forwarded text
Best Wishes,
Douglas B. Johnson
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