Pleasures of Cockaigne: Quality Gaps, Market Structure, and the Amount of Grading

Abstract

Abstract The article explores under what circumstances high‐quality producers would not voluntarily submit to grading when low‐quality firms would readily do so and under what conditions high‐quality firms would have a lesser proportion of their output graded than would their low‐quality counterparts. It also investigates how market structure affects the decison to grade, establishing that a competitive industry carries out the optimal amount of grading. When some firms have finite market shares, the industry engages in excessive grading.