Joint Private Safety Standards and Vertical Relationships in Food Retailing

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Abstract

In recent years, it has become common for downstream firms to impose Joint Private Standards (JPSs) on upstream producers. In this paper, we present an original model of a vertical relationship, explaining the incentives for and the effects of such JPSs with an example concerning food safety. The risk of a food crisis is endogenously determined. Using the concept of cartel stability (d’Aspremont et al., 1983), it is shown that liability rules are crucial for JPSs to emerge, that a JPS can become a minimum quality standard, and that a more stringent JPS does not necessarily reduce the market risk.

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