Vertical relationships and safety standards in the food marketing chain.

Summary In recent years it has become more common that downstream firms implement joint or collective private standards in order to improve the safety of final products. In this paper, we present a model of vertical relationships in which a group of downstream firms impose more stringent specifications on upstream suppliers. The probability of failing to provide safe goods is endogenously determined by the investments made by upstream producers. Furthermore, a penalty cost in the event of a crisis, due to a rule of liability, is modeled as a decreasing function of the level of the standard. The influence of the rule of liability on the adoption of the joint standard and the size of the stable coalition are examined. The conditions under which the probability of a failure to provide safe goods decrease are examined and discussed.