Conference Agenda

This article examines how export fraud involving unlabeled products compromises the viability of labeled products on the domestic market when domestic consumers are imperfectly informed. We consider two market segments: a high-quality "green" product (G) and a low-quality "brown" product (B). We develop a multi-stage game where firms compete through prices on international and domestic markets, and low-quality producers choose the level of compliance and fraud. While international consumers value intrinsic environmental quality, the willingness to pay of domestic consumers is influenced by a collective reputation factor that deteriorates when fraudulent exports by domestic producers are detected. Our analysis reveals that the resulting decline in perceived quality intensifies domestic price competition, potentially leading to the erosion of the market share of high-quality goods in favour of lower-quality alternatives. This effect can be counteracted if the government promotes an intermediate national eco-label (M) whose perceived quality is less sensitive to reputation concerns, but possibly at the expense of the eco-labeled product.