Geographical Indications and the Competitive Provision of Quality in Agricultural Markets

GianCarlo Moschini, Luisa Menapace, Daniel Pick
January 2008  [08-WP 458]

The economics of geographical indications (GIs) is assessed within a vertical product differentiation framework that is consistent with the competitive structure of the agricultural sector with free entry/exit. It is assumed that certification costs are needed for GIs to serve as (collective) credible quality certification devices, and production of high-quality product is endogenously determined. We find that GIs can support a competitive provision of quality that partly overcomes the market failure and leads to clear welfare gains, although they fall short of delivering the (constrained) first-best level of the high-quality good. The main beneficiaries of the welfare gains are consumers. Producers may also accrue some benefit if the production of high-quality products draws on scarce factors that they own.

Keywords: competitive industry; free entry/exit; geographical indications; Marshallian stability; quality certification; trademarks; welfare.

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