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Abstract
The purpose of this paper is to investigate the economic rationale underlying
collective management and supply control mechanisms in European
protected designations of origin (PDOs), with a focus on the French
Comte cheese market. The argument is based on the presence of imperfect
competition at the processing stage of the industry. Assuming that processors
are able to exercise both oligopsony power in the procurement of the
agricultural output and oligopoly power in the sale of the final product,
I show that vertical integration between upstream producers and downstream
processors is mutually beneficial as long as the integrated industry
is able to exercise some degree of seller market power. I characterize instances
where consumers also win from the integration process, so that
the vertically integrated monopolist is less detrimental to social welfare
than the separated industry. Even when consumers lose, the deadweight
loss due to market power by the integrated monopolist may not be significantly
higher than that arising from the joint exertion of oligopsony
and oligopoly power by a separated processing sector. This argument
provides a potential rationale to the government-sanctioned production
control scheme currently in place in the French Comte cheese market.