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Household Level Welfare Effect of Organic Milk Introduction

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  • Choi, Hee Jung
  • Wohlgenant, Michael K.
  • Zheng, Xiaoyong

Abstract

This study analyzes the factors that determine the demand for milk products and the consumer benefits from organic milk introduction. Estimating a structural model, the welfare effect is decomposed into two parts: the effect of having an additional product and the effect from the price changes in existing products due to the enhanced competition. In order to take heterogeneous tastes for different product characteristics into account, the unit of analysis is defined at the Universal Product Code (UPC) level and the demand is estimated for each household. The estimates from mixed logit demand approach indicate that households with younger head, higher income or higher education value more for the organic attribute. The distribution of estimated variety effect shows similar implications as the parameter estimates. The compensating variation and price effects indicate that the overall benefits take about 8 percent of the current expenditure and half of it is from increased competition in the market.

Suggested Citation

  • Choi, Hee Jung & Wohlgenant, Michael K. & Zheng, Xiaoyong, 2011. "Household Level Welfare Effect of Organic Milk Introduction," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103550, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea11:103550
    DOI: 10.22004/ag.econ.103550
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    References listed on IDEAS

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    1. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    2. Steven Berry & James Levinsohn & Ariel Pakes, 2004. "Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 68-105, February.
    3. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
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    Cited by:

    1. Lee, Sangwon, 2022. "Economic effects of plant-based milk introduction on consumers and dairy industry," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322573, Agricultural and Applied Economics Association.
    2. Robert Clark & Yiran Gong, 2021. "Why Do Some New Products Fail? Evidence from the Entry and Exit of Vanilla Coke," Working Paper 1475, Economics Department, Queen's University.
    3. Ghazaryan, Armen & Bonanno, Alessandro & Carlson, Andrea, 2023. "I Say Milk, You Say Mylk. Demand Separability in a Broadened Milk Category," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 48(2), May.
    4. Syed Badruddoza & Andrea C. Carlson & Jill J. McCluskey, 2022. "Long‐term dynamics of US organic milk, eggs, and yogurt premiums," Agribusiness, John Wiley & Sons, Ltd., vol. 38(1), pages 45-72, January.
    5. Osman Gulseven & Michael Wohlgenant, 2015. "A quality-based approach to estimating quantitative elasticities for differentiated products: an application to retail milk demand," Quality & Quantity: International Journal of Methodology, Springer, vol. 49(5), pages 2077-2096, September.
    6. Phani Kumar Chintakayala & William Young & Ralf Barkemeyer & Michelle A. Morris, 2018. "Breaking niche sustainable products into the mainstream: Organic milk and free‐range eggs," Business Strategy and the Environment, Wiley Blackwell, vol. 27(7), pages 1039-1051, November.

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