PUBLIC REGULATION AS A SUBSTITUTE FOR TRUST IN QUALITY FOOD MARKETS. WHAT IF THE TRUST SUBSTITUTE CANNOT BE FULLY TRUSTED?

Most food products can be classified as "credence" goods and regulations exist to provide consumers with a substitute for the lacking information and trust. The paper presents an analysis of the decisions of producers and consumers about a "credence" good in three institutional scenarios, which reflect different levels of credibility of the regulation. The first scenario is a reference scenario in which the regulation is fully credible. In the second case considered there is no regulation, or, if there is, it is totally ineffective. In the third scenario a regulation only partially credible provides consumers with an imperfect substitute for the information and trust they lack. Some of the producers of "low" quality goods share with the producers of "high" quality goods an interest in the introduction of a regulation as long as this is not fully credible. In addition, it may be the case that even producers of "low" quality goods who know they will not be able to sell their products labeling them as being of "high" quality may have an interest in supporting a not fully credible regulation. Finally, rather than having producers of "low" quality goods "block" the introduction of a fully credible regulation, producers of "high" quality goods are better off when a compromise is reached which leads to the approval of an imperfect regulation.Food Consumption/Nutrition/Food Safety,

Consumers and sellers heterogeneity, search costs and spatial price dispersion in retail food markets

— Price dispersion, i.e. a homogeneous product sold at different prices by different sellers, is among the most replicated findings in empirical economics. The paper assesses the extent and determinants of spatial price dispersion for 14 perfectly homogeneous food products in more than 400 retailers in a market characterized by the persistence of a large number of relatively small traditional food stores, side by side with large supermarkets. The extent of observed price dispersion is quite high, suggesting that, despite their large number, monopolistic competition prevails among sellers as a result of the heterogeneity of services offered. When prices in an urban area (where the spatial concentration of sellers is much higher and consumer search costs significantly lower) have been compared with those in smaller towns and rural areas, differences in search costs and the potentially higher degree of competition did not yield lower prices; quite the contrary, they were, on average, higher for 11 of the 14 products considered. Supermarkets proved to be often, but not always, less expensive than traditional retailers, although average savings associated to food shopping at supermarkets were extremely low. Finally, the results of the study suggest that sellers behave differently in their pricing decision strategies; these differences emerge both at the firm level and, for supermarkets, within the same chain. The fact that products considered were homogeneous, purchases frequently repeated, the number of sellers large, and search costs relatively low, did not suffice to keep price dispersion low. Based on the results presented in the paper, it is clear that more important in explaining price dispersion is the contemporaneous heterogeneity of retailers (in terms of services rendered) and consumers (in terms of their propensity to search and shopping preferences), which makes it possible for a monopolistic competition structure of the market to emerge and for small traditional food retail stores to remain in business.Price dispersion, retail pricing, food markets., Agribusiness, Agricultural and Food Policy, Community/Rural/Urban Development, Food Consumption/Nutrition/Food Safety, Labor and Human Capital,

Price dispersion, search costs and consumers and sellers heterogeneity in retail food markets.

Price dispersion, i.e. a homogeneous product being sold at different prices by different sellers, is among the most replicated findings in empirical economics. The paper assesses the extent and determinants of spatial price dispersion for 14 perfectly homogeneous food products in more than 400 retailers in a market characterized by the persistence of a large number of relatively small traditional food stores, side by side large supermarkets. The extent of observed price dispersion is quite high, suggesting that monopolistic competition prevails as a result of the heterogeneity of consumers and services offered. When prices in an urban area (where the spatial concentration of sellers is much higher and consumer search costs significantly lower) are compared with those in smaller towns and rural areas, differences in search costs and the potentially higher degree of competition do not yield lower prices; quite the contrary, they are, on average, higher in the urban area for 11 of the 14 products considered. Supermarkets proved to be often, but not always, less expensive than traditional retailers, although average savings from food shopping at supermarkets were extremely low. Finally, the results of the study suggest that retailers have different pricing strategies; these differences emerge both at the firm level and for supermarkets within the same chain. The results presented in the paper suggest that what is important in explaining price dispersion is the contemporaneous heterogeneity of retailers (in terms of services) and consumers (in terms of search and shopping preferences), which makes it possible for a monopolistic competition structure of the market to emerge and for small traditional food retailers to remain in business

Consumers and sellers heterogeneity, search costs and spatial price dispersion in retail food markets

— Price dispersion, i.e. a homogeneous product sold at different prices by different sellers, is among the most replicated findings in empirical economics. The paper assesses the extent and determinants of spatial price dispersion for 14 perfectly homogeneous food products in more than 400 retailers in a market characterized by the persistence of a large number of relatively small traditional food stores, side by side with large supermarkets. The extent of observed price dispersion is quite high, suggesting that, despite their large number, monopolistic competition prevails among sellers as a result of the heterogeneity of services offered. When prices in an urban area (where the spatial concentration of sellers is much higher and consumer search costs significantly lower) have been compared with those in smaller towns and rural areas, differences in search costs and the potentially higher degree of competition did not yield lower prices; quite the contrary, they were, on average, higher for 11 of the 14 products considered. Supermarkets proved to be often, but not always, less expensive than traditional retailers, although average savings associated to food shopping at supermarkets were extremely low. Finally, the results of the study suggest that sellers behave differently in their pricing decision strategies; these differences emerge both at the firm level and, for supermarkets, within the same chain. The fact that products considered were homogeneous, purchases frequently repeated, the number of sellers large, and search costs relatively low, did not suffice to keep price dispersion low. Based on the results presented in the paper, it is clear that more important in explaining price dispersion is the contemporaneous heterogeneity of retailers (in terms of services rendered) and consumers (in terms of their propensity to search and shopping preferences), which makes it possible for a monopolistic competition structure of the market to emerge and for small traditional food retail stores to remain in business

PUBLIC REGULATION AS A SUBSTITUTE FOR TRUST IN QUALITY FOOD MARKETS. WHAT IF THE TRUST SUBSTITUTE CANNOT BE FULLY TRUSTED?

Most food products can be classified as "credence" goods and regulations exist to provide consumers with a substitute for the lacking information and trust. The paper presents an analysis of the decisions of producers and consumers about a "credence" good in three institutional scenarios, which reflect different levels of credibility of the regulation. The first scenario is a reference scenario in which the regulation is fully credible. In the second case considered there is no regulation, or, if there is, it is totally ineffective. In the third scenario a regulation only partially credible provides consumers with an imperfect substitute for the information and trust they lack. Some of the producers of "low" quality goods share with the producers of "high" quality goods an interest in the introduction of a regulation as long as this is not fully credible. In addition, it may be the case that even producers of "low" quality goods who know they will not be able to sell their products labeling them as being of "high" quality may have an interest in supporting a not fully credible regulation. Finally, rather than having producers of "low" quality goods "block" the introduction of a fully credible regulation, producers of "high" quality goods are better off when a compromise is reached which leads to the approval of an imperfect regulation