1 Transaction costs and artisanal food products Dr D. Barjolle & J.-M. Chappuis, Institute of Agricultural Economics Swiss Federal Institute of Technology Zurich IER-AR/EPFL, GR-Ecublens CH-1015 Lausanne, Switzerland E-mail: barjolle@iaw.agrl.ethz.ch, chappuis@iaw.agrl.ethz.ch Tel. ++ 41 21 693 57 13 ; Fax : ++ 41 21 693 57 17 Abstract Mainstream economic theory has difficulty explaining the reasons why artisanal 1 food products continue to exist in highly competitive markets. Artisanal products are labor- intensive rather than capital-intensive and therefore cannot benefit from economies of scale. Our research looks at a particular form of artisanal production: the production of the same foodstuff by several artisanal enterprises using the same designation. Analyzing the strategies of the artisanal enterprises, we observe that they improve their chances of success by combining two main elements: (1) They choose a collective way to define a common marketing strategy and build up a serious competitive advantage based on a high specificity of the product. To achieve this objective, they adopt a common code of practice. They also set up a service of technical and commercial information for the enterprises, organize common promotion of the product, develop common R&D programs, etc. Inter-professional bodies are created in order to manage the various aspects of the collective management. They gather representatives of the enterprises and make strategic decisions for the supply chain. (2) The governance structures selected by the operators may minimize their transaction costs (Williamson 1975, 1985). We show, however, that collective decisions made within the inter- professional body through a multilateral negotiation process have a direct influence on the bilateral relations between the operators. Private collective institutions set up by the inter- professional body contribute to reducing transaction costs between the enterprises. Although we do not calculate the cost savings linked to the observed governance structure, we highlight the mechanisms, which lead to these cost reductions. The case-study of a traditional cheese produced in the Swiss Alps gives an example of the collective institutions set up to manage the supply chain from the milk producers to the cheese ripeners. Key Words : Food supply chains, transaction costs, coordination, governance structure, product differentiation. 1 We use the French adjective “artisanal” which does not exist in English but could be derived from the word “artisan”. The translation of “artisanal” in a dictionary is: (a) relating to crafts, (b) skilled and (c) on a small scale.