Strength of Protection for Geographical Indications

• Agricultural Economics Workshop

Date and Location

Tuesday, April 22, 2014, 4:10 PM - 5:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

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. GI 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). From the point of view of consumers and aggregate welfare, the preferred level of protection depends on the model’s parameters, and an intermediate level of protection is optimal in many circumstances.