Perfect and imperfect labels in credence good markets with vertical relations and vertical differentiation

Abstract

In the present attempt there is an analysis in credence goods market. I assume that there is an upstream monopolist and two downstream firms. Consumers know that quality ranges but they do not know which of the firms supplies each quality. At first, there can be monopoly or duopoly in the downstream level. This depends on the efficiency of each firm and consumers’ trust. Secondly, the introduction of a label can correct the lack of full information, but it can also decrease the profitability of the firms. Lastly, the upstream monopolist may have greater profits so as to encourage a monopoly in downwards market.