Labeling Policies and Market Behavior: Quality Standard and Voluntary Label Adoption

Abstract

This paper focus's on the third-party certifiers' strategy when choosing a required label quality, and the consequent market outcome. We consider two different objectives of the certifier: maximizing global demand for the labeled product (wide public policy), or maximizing global quality of the market (global quality policy). In a duopoly set up with firms bearing different costs with respect to quality provision, firms always opt for differentiation strategies: only one adopts the label. However, the labeling firm is not necessarily the most efficient one. In the case of a wide public policy, the efficient firm will produce labeled products only if costs of labeling are sufficiently low. In the case of a global quality policy, the low cost firm will always push the highcost firm into the labeling program.

Controversy Over Voluntary Environmental Standards: A Socioeconomic Analysis of the Marine Stewardship Council

“…An optimally designed standard incorporates the trade-off between stringency and number of adopters. A stand-alone NGO will set up a more stringent standard than an industry-led standard setter will do (Bottega & De Freitas, 2009; Bottega et al, 2009; Fischer & Lyon, 2014). 4 This has been observed in the forestry case, where the NGO-driven FSC coexists with the weaker, industry-induced PEFC/SFI (Sasser, Prakash, Cashore, & Auld, 2006).…”

“…4 This has been observed in the forestry case, where the NGO-driven FSC coexists with the weaker, industry-induced PEFC/SFI (Sasser, Prakash, Cashore, & Auld, 2006). The interactions between both co-creators have led the MSC standard to lie between two polar policies identified by Bottega et al (2009). A “global quality policy,” whose high stringency seeks to maximize the overall quality of the environment (such as highly sustainable fisheries), is usually favored by mission-driven NGOs with their strong value-driven commitment (Fischer & Lyon, 2014).…”

“…While collaboration and common ground must thus prevail to effectuate voluntary standards, studies have demonstrated the presence of conflicts. Controversy may exist among creators over the desired design (Bartley, 2007; Bottega, Delacote, & Ibanez, 2009; Helms, Oliver, & Webb, 2012), among adopters over the implementation benefits (Asche, Larsen, Smith, Sogn-Grundvåg, & Young, 2015; Goyert, Sagarin, & Annala, 2010; Stemle, Uchida, & Roheim, 2015), and between creators and adopters (Aravind & Christmann, 2011; Sandholtz, 2012; Schuler & Christmann, 2011). The multiplication of different standards pursuing similar goals has led to competition between standards (e.g., Amacher, Koskela, & Ollikainen, 2004; Bottega & De Freitas, 2009; Fischer & Lyon, 2014; Reinecke, Manning, & Von Hagen, 2012).…”

Certification of corporate social responsibility activities in oligopolistic markets

“…In a Bertrand duopoly with cost asymmetries in quality provision, Bottega, Delacote, and Ibanez (2009) study the impact of a certifier’s objectives on the firms’ label adoption choices. They find that firms’ differentiation strategies induce an asymmetric equilibrium where only one firm, not necessarily the most efficient, adopts the label.…”

Certification of Environmental Corporate Social Responsibility Activities in Differentiated Duopoly Market

“…Therefore, there is a need for a corporate social responsibility information disclosure mechanism, a reliable signal to consumers' efforts. A certain standard for the realization of a company by third party certification [5,6] serves as such a mechanism.…”