Food Quality Competition Among Companies and Government Food Safety Supervision Under Asymmetric Product Substitution
Author:Ningzhou Shen, Yinghua Song, Dan Liu and Dalia Streimikiene
JEL:I20, I23, O15, P46
DOI:10.24818/EA/2021/56/221
Keywords:food safety; Cournot competition; asymmetric product substitution; game theory
Abstract:
The frequent exposures of food safety events in recent years have aroused extensive social
concerns. Food quality and safety are hot topics in the food engineering field. In a market
with mutual competitions, the products of different enterprises are substitutive, and
enterprises have to achieve reasonable yield and to ensure product quality to maximize their
profits. However, the limited production resources of enterprises affect their strategies in
yield and quality. To explore enterprises’ decisions in yield and food quality under no
resource constraint as well as with yield and quality under resource constraints, a Cournot
model with differential product substitution was constructed by using game theory, and the
effects of government monitoring on food quality decision were further investigated.
Results show that enterprises with strong product substitutability increase the yield and
quality of their products. They can gain higher profits under no resource constraint and
under resource constraint, but their profits are lower under quality constraint compared to
the profits of enterprises with low product substitutability. When the equilibrium quality of
enterprises is lower than the lowest quality standard requirements of the government, a high
penalty ( β ) or a relatively low government supervision difficulty ( c ) urges enterprises to
improve product quality. Under this circumstance, two enterprises produce according to the
lowest quality standards. On the contrary, enterprises take certain risks to produce lowquality
products to increase profits. The conclusions provide a theoretical basis to formulate
food safety regulation policies from the perspective of product substitutability.