Measuring and analyzing product labeling policies in supply chain processes is a largely unexplored topic. This paper analyzes the reasons why suppliers may pursue different product labeling policies in asymmetric information and how this affects buyers' product utility in the context of supply chain collaboration. In an asymmetric information environment, where suppliers know the quality of the goods they are selling and buyers are not able to distinguish between them, the quality buyers select to protect by a label depends on buyer's preferences for and production costs of different qualities. Suppliers with different distributions of tastes and/or different production functions will thus decide to label differently. When they collaborate, product utility effects will be different on the buyer as a whole and on different types of buyers within each buyer depending on whether buyers select to mutually recognize each other's labeling policy or to harmonize their policies. In particular, it will be the case that a buyer with weak preferences for high quality will oppose the introduction of an international, harmonized label as it is better off under a regime of mutual recognition. When suppliers only differ in their costs of producing quality instead, none of the suppliers or buyers will lose from a move towards supply chain collaboration under an international, harmonized label.
Knowing More from Less: How the Information Environment Increases Knowledge of Party Positions
