The Role of Common Labelling in a Context of Asymmetric Information.

We use cartel theory to analyse the influence of common labelling in agricultural markets. An analytical framework of adverse selection where consumers are imperfectly informed about the quality of products is used to investigate the welfare effects of a cartel. In the absence of a cartel, market inefficiencies may arise as a result of asymmetric information. We show that given a high cost of labelling, a cartel that provides information about product quality may improve overall welfare even if producers collude to reduce quantity competition. Copyright 1999 by Oxford University Press.