Market positioning in food industry in response to public health policies

Public health agencies have designed and implemented interventions to control the global obesity epidemic using healthfulness messaging and policy changes such as taxation. These changes in the policy environment and marketplace dynamics have shifted consumer trends and have challenged food producers in the industry. The following questions are considered in the food industry in such a context: (i) Should firms offer similar or very different quality offerings? (ii) How should a firm's positioning strategies change as consumers' perceptions of healthful messaging and taxation change? and (iii) How do these factors impact firm profits and social welfare (SW)? Using an analytical model of duopolistic competition, we highlight that both firm profits as well as SW could increase when the importance of healthfulness messaging to consumers increases. Furthermore, we show that increased taxation could reduce the quality gap between alternatives in the market, forcing firms to lower prices. In contrast, when healthfulness messaging becomes more important to consumers, the quality gap between both firms increases. Our results provide important implications for public policy as well as firm profits as a consequence of the strategic decisions of firms in a health policy context.