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Implementation of a GAP Label in a Differentiated-Product Industry: A Welfare Evaluation with a Random Coefficients Model for Mar Del Plata, Argentina

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  • Lacaze, Maria Victoria
  • Gonzalez, Julia

Abstract

This paper evaluates the effect on market shares and consumer surplus of the introduction of a Good Agricultural Practices (GAP)-labeled product in the frozen fried potatoes (FFP) industry. We first estimate a model of household demand in Mar del Plata, Argentina, using scanner data and demographic information. We find that higher income individuals are more concerned about health and nutrition, and that younger and lower-income consumers are more price-sensitive. Then we postulate that a properly GAP-labeled FFP is available in the market, and we assess its effect by using the estimated utility function and prior information about consumers’ declared willingness to pay (WTP) for sustainably produced potatoes. We find that the older the individual, the greater the influence of the hypothetical introduction of the GAP-labeled product; the relationship is less conclusive in the case of income. Finally, we predict the results of a greater consumer surplus extraction by fixing a higher price for the new product, and we calculate the maximum increase in the marginal cost that the firm would be able to afford if farmers charge higher prices for GAP fresh potatoes.

Suggested Citation

  • Lacaze, Maria Victoria & Gonzalez, Julia, 2012. "Implementation of a GAP Label in a Differentiated-Product Industry: A Welfare Evaluation with a Random Coefficients Model for Mar Del Plata, Argentina," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126397, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae12:126397
    DOI: 10.22004/ag.econ.126397
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    References listed on IDEAS

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    1. Gil, Jose Maria & Gracia, Azucena & Sanchez Garcia, Mercedes, 2000. "Market Segmentation And Willingness To Pay For Organic Products In Spain," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 3(2), pages 1-20.
    2. Rodríguez, Elsa Mirta M. & Lacaze, María Victoria & Lupín, Beatriz & González, Julia, 2010. "Alimentos diferenciados por atributos de producto y de procesos: una experiencia de investigación socio-económica integrada a los aspectos integrada a los aspectos agronómicos," Nülan. Deposited Documents 2545, Universidad Nacional de Mar del Plata, Facultad de Ciencias Económicas y Sociales, Centro de Documentación.
    3. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-342, March.
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    5. Jerry A. Hausman, 1996. "Valuation of New Goods under Perfect and Imperfect Competition," NBER Chapters, in: The Economics of New Goods, pages 207-248, National Bureau of Economic Research, Inc.
    6. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-329, March-Apr.
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    More about this item

    Keywords

    Agribusiness; Consumer/Household Economics; Industrial Organization; Marketing;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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