Campus Units

Economics, Center for Agricultural and Rural Development

Document Type

Article

Publication Version

Accepted Manuscript

Publication Date

7-2014

Journal or Book Title

American Journal of Agricultural Economics

Volume

96

Issue

4

First Page or Article ID Number

1030

Last Page

1048

DOI

10.1093/ajae/aau016

Abstract

We address the question of how the strength of protection for geographical indications (GIs) affects the GI industry's promotion incentives, equilibrium market outcomes, and the distribution of welfare. Geographical indication producers engage in informative advertising by associating their true quality premium (relative to a substitute product) with a specific label emphasizing the GI's geographic origin. The extent to which the names/words of the GI label can be used and/or imitated by competing products—which depends on the strength of GI protection—determines how informative the GI promotion messages can be. Consumers’ heterogeneous preferences (vis-à-vis the GI quality premium) are modeled in a vertically differentiated framework. Both the GI industry and the substitute product industry are assumed to be competitive (with free entry). The model is calibrated and solved for alternative parameter values. Results show that producers of the GI and of the lower-quality substitute good have divergent interests: GI producers are better off with full protection, whereas the substitute good's producers prefer intermediate levels of protection (but they never prefer zero protection because they benefit indirectly if the GI producers’ incentives to promote are preserved). For consumers and aggregate welfare, the preferred level of protection depends on the model's parameters, with an intermediate level of protection being optimal in many circumstances.

JEL Classification

D23, L15, M37, Q13

Comments

This is a manuscript of an article from American Journal of Agricultural Economics 96 (2014): 1030, doi: 10.1093/ajae/aau016. Posted with permission.

Copyright Owner

The Author

Language

en

File Format

application/pdf

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