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

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

Abstract

A repeated-purchases model is developed to explore the fundamental economic factors that lie
behind the choice of different quality assurance systems 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.

Keywords: quality assurance, reputations, repeated purchases, product quality, supply chain,
value-added agriculture, imperfect information.

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