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Abstract
This paper develops an original
framework to better understand the interaction between
the development of brands and the quality of raw
materials. We consider different levels of consumer trust
for a brand and we examine the incentive for firms to
improve the quality of a processed product by requiring
that upstream suppliers adopt a private standard. In
contrast to previous literature, the incentive for firms to
develop a more stringent private standard may increase
with the level of the regulated minimum quality
standard. Moreover, the creation of a private standard
can reduce the risk of consumer dissatisfaction while
increasing the marketed quantity. Unexpected positive
effects of a reinforcement of the minimum quality
standard may arise, in the sense that both market access
for upstream producers and consumer surplus are
improved and final price may decrease with respect to
simply complying with the regulation.