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Abstract

This paper highlights the strategic role retailers private quality standards play in food supply chains. Considering two symmetric downstream firms that are exclusively supplied by a finite number of upstream firms and letting the upstream firms decide which retailer to supply, we show that there exist two asymmetric equilibria in the downstream firms quality requirements. The asymmetry is driven by both an increase in the retailers buyer power and the retailers competition for suppliers. The use of private quality standards induces a decrease in social welfare, which can be softened by the implementation of a public minimum quality standard.

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