In many ways, the modern market for food exemplifies the economist’s conception of perfect competition, with many buyers, many sellers, and a robust and dynamic marketplace. But over the course of the last century, the U.S. has witnessed a dramatic shift away from traditional diets and toward a diet comprised primarily of processed brand-name foods with deleterious long-term health effects. This, in turn, has generated increasingly urgent calls for policy interventions aimed at improving the quality of the American diet. In this paper, we ask whether the current state of affairs represents a market failure, and—if so—what might be done about it. We review evidence that most of the nutritional deficiencies associated with today’s processed foods were unknown to nutrition science at the time these products were introduced, promoted, and adopted by American consumers. Today more is known about the nutritional implications of various processing technologies, but a number of forces—including consumer habits, costly information, and the market power associated with both existing brands and scale economies—are working in concert to maintain the status quo. We argue that while the current brand-based industrial food system (adopted and maintained historically as a means of preventing competition from small producers) has its advantages, the time may have come to consider expanding the system of quality grading employed in commodity markets into the retail market for food.
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Paper provided by School of Economic Sciences, Washington State University in its series Working Papers with number
2009-07.
Find related papers by JEL classification: D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
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