IDEAS home Printed from https://ideas.repec.org/a/inm/ormksc/v43y2024i2p289-316.html
   My bibliography  Save this article

Dynamic Pricing and Organic Waste Bans: A Study of Grocery Retailers’ Incentives to Reduce Food Waste

Author

Listed:
  • Robert Evan Sanders

    (University of California, Rady School of Management, La Jolla, California 92093)

Abstract

I analyze the welfare effects of two potential solutions to excess grocery-retail food waste: dynamic pricing and organic waste landfill bans. I use a structural econometric model with sales, perishability, and marginal cost data from a grocery chain’s artisanal bread category. My analysis of these counterfactuals shows that dynamic pricing Pareto-dominates an organic waste ban: Dynamic pricing reduces waste by 21% while increasing the chain’s gross margins and consumer surplus by 3% and 0.3%, respectively. In contrast, an organic waste ban, simulated by a ten-fold increase in disposal costs, reduces waste by only 4% and decreases profits and consumer surplus. Therefore, if regulators want to reduce grocery-store waste, they should incentivize chains to adopt dynamic pricing over imposing organic waste bans.

Suggested Citation

  • Robert Evan Sanders, 2024. "Dynamic Pricing and Organic Waste Bans: A Study of Grocery Retailers’ Incentives to Reduce Food Waste," Marketing Science, INFORMS, vol. 43(2), pages 289-316, March.
    • Handle: RePEc:inm:ormksc:v:43:y:2024:i:2:p:289-316
    DOI: 10.1287/mksc.2020.0214
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mksc.2020.0214
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mksc.2020.0214?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ali Hortacsu & Olivia R. Natan & Hayden Parsley & Timothy Schwieg & Kevin R. Williams, 2021. "Organizational Structure and Pricing: Evidence from a Large U.S. Airline," Cowles Foundation Discussion Papers 2312, Cowles Foundation for Research in Economics, Yale University.
    2. Stella, Andrea, 2020. "Economies of scope in price setting: A moment inequalities estimation," Journal of Monetary Economics, Elsevier, vol. 110(C), pages 50-61.
    3. Barry C. Smith & John F. Leimkuhler & Ross M. Darrow, 1992. "Yield Management at American Airlines," Interfaces, INFORMS, vol. 22(1), pages 8-31, February.
    4. Sankar Sen & Lauren G. Block, 2009. ""Why My Mother Never Threw Anything Out": The Effect of Product Freshness on Consumption," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 36(1), pages 47-55, June.
    5. Thomas C. Kinnaman & Don Fullerton, 2002. "Garbage and Recycling with Endogenous Local Policy," Chapters, in: Don Fullerton & Thomas C. Kinnaman (ed.), The Economics of Household Garbage and Recycling Behavior, chapter 6, pages 120-143, Edward Elgar Publishing.
    6. Robert L. Bray & Yuliang Yao & Yongrui Duan & Jiazhen Huo, 2019. "Ration Gaming and the Bullwhip Effect," Operations Research, INFORMS, vol. 67(2), pages 453-467, March.
    7. Don Fullerton & Thomas C. Kinnaman, 2002. "Household Responses to Pricing Garbage by the Bag," Chapters, in: Don Fullerton & Thomas C. Kinnaman (ed.), The Economics of Household Garbage and Recycling Behavior, chapter 4, pages 88-101, Edward Elgar Publishing.
    8. Mingyu Joo & Dinesh K. Gauri & Kenneth C. Wilbur, 2020. "Temporal Distance and Price Responsiveness: Empirical Investigation of the Cruise Industry," Management Science, INFORMS, vol. 66(11), pages 5362-5388, November.
    9. Victor Aguirregabiria, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(2), pages 275-308.
    10. Pashigian, B Peter, 1988. "Demand Uncertainty and Sales: A Study of Fashion and Markdown Pricin g," American Economic Review, American Economic Association, vol. 78(5), pages 936-953, December.
    11. Nicole DeHoratius & Ananth Raman, 2008. "Inventory Record Inaccuracy: An Empirical Analysis," Management Science, INFORMS, vol. 54(4), pages 627-641, April.
    12. Small, Kenneth A & Rosen, Harvey S, 1981. "Applied Welfare Economics with Discrete Choice Models," Econometrica, Econometric Society, vol. 49(1), pages 105-130, January.
    13. Guillermo Gallego & Garrett van Ryzin, 1994. "Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons," Management Science, INFORMS, vol. 40(8), pages 999-1020, August.
    14. Anderson, Eric & Malin, Benjamin A. & Nakamura, Emi & Simester, Duncan & Steinsson, Jón, 2017. "Informational rigidities and the stickiness of temporary Sales," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 64-83.
    15. Ali Hortacsu & Olivia R. Natan & Hayden Parsley & Timothy Schwieg & Kevin R. Williams, 2021. "Organizational Structure and Pricing: Evidence from a Large U.S. Airline," Cowles Foundation Discussion Papers 2312R4, Cowles Foundation for Research in Economics, Yale University, revised Jun 2023.
    16. Kevin R. Williams, 2022. "The Welfare Effects of Dynamic Pricing: Evidence From Airline Markets," Econometrica, Econometric Society, vol. 90(2), pages 831-858, March.
    17. Stefano DellaVigna & Matthew Gentzkow, 2019. "Uniform Pricing in U.S. Retail Chains," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(4), pages 2011-2084.
    18. Benjamin R. Handel & Kanishka Misra, 2015. "Robust New Product Pricing," Marketing Science, INFORMS, vol. 34(6), pages 864-881, November.
    19. Kelly L. Haws & William O. Bearden, 2006. "Dynamic Pricing and Consumer Fairness Perceptions," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 33(3), pages 304-311, October.
    20. Ali Hortacsu & Olivia R. Natan & Hayden Parsley & Timothy Schwieg & Kevin R. Williams, 2021. "Organizational Structure and Pricing: Evidence from a Large U.S. Airline," Cowles Foundation Discussion Papers 2312R3, Cowles Foundation for Research in Economics, Yale University, revised Jan 2023.
    21. Carattini, Stefano & Baranzini, Andrea & Lalive, Rafael, 2018. "Is Taxing Waste a Waste of Time? Evidence from a Supreme Court Decision," Ecological Economics, Elsevier, vol. 148(C), pages 131-151.
    22. Ali Hortacsu & Olivia R. Natan & Hayden Parsley & Timothy Schwieg & Kevin R. Williams, 2021. "Organizational Structure and Pricing: Evidence from a Large U.S. Airline," Cowles Foundation Discussion Papers 2312R2, Cowles Foundation for Research in Economics, Yale University, revised Oct 2022.
    23. Pinelopi Koujianou Goldberg & Rebecca Hellerstein, 2008. "A Structural Approach to Explaining Incomplete Exchange-Rate Pass-Through and Pricing-to-Market," American Economic Review, American Economic Association, vol. 98(2), pages 423-429, May.
    24. Yu-Kai Huang & Reid B. Stevens & W. Douglass Shaw, 2021. "Waste reduction and waste spillovers: evidence from unit-based pricing of municipal solid waste in Taiwan," Journal of Environmental Economics and Policy, Taylor & Francis Journals, vol. 10(3), pages 223-242, July.
    25. Ioannis Stamatopoulos & Achal Bassamboo & Antonio Moreno, 2021. "The Effects of Menu Costs on Retail Performance: Evidence from Adoption of the Electronic Shelf Label Technology," Management Science, INFORMS, vol. 67(1), pages 242-256, January.
    26. Günter J. Hitsch & Ali Hortaçsu & Xiliang Lin, 2021. "Prices and promotions in U.S. retail markets," Quantitative Marketing and Economics (QME), Springer, vol. 19(3), pages 289-368, December.
    27. Günter J. Hitsch, 2006. "An Empirical Model of Optimal Dynamic Product Launch and Exit Under Demand Uncertainty," Marketing Science, INFORMS, vol. 25(1), pages 25-50, 01-02.
    28. Theotokis, Aristeidis & Pramatari, Katerina & Tsiros, Michael, 2012. "Effects of Expiration Date-Based Pricing on Brand Image Perceptions," Journal of Retailing, Elsevier, vol. 88(1), pages 72-87.
    29. David A. Matsa, 2011. "Competition and Product Quality in the Supermarket Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1539-1591.
    30. Jean-Pierre Dubé & Sanjog Misra, 2023. "Personalized Pricing and Consumer Welfare," Journal of Political Economy, University of Chicago Press, vol. 131(1), pages 131-189.
    31. Pradeep Chintagunta & Jean-Pierre Dubé & Vishal Singh, 2003. "Balancing Profitability and Customer Welfare in a Supermarket Chain," Quantitative Marketing and Economics (QME), Springer, vol. 1(1), pages 111-147, March.
    32. Stephen F Hamilton & Timothy J Richards, 2019. "Food Policy and Household Food Waste," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(2), pages 600-614.
    33. Joseph Jiaqi Xu & Peter S. Fader & Senthil Veeraraghavan, 2019. "Designing and Evaluating Dynamic Pricing Policies for Major League Baseball Tickets," Service Science, INFORMS, vol. 21(1), pages 121-138, January.
    34. Kevin Rennert & Frank Errickson & Brian C. Prest & Lisa Rennels & Richard G. Newell & William Pizer & Cora Kingdon & Jordan Wingenroth & Roger Cooke & Bryan Parthum & David Smith & Kevin Cromar & Dela, 2022. "Comprehensive evidence implies a higher social cost of CO2," Nature, Nature, vol. 610(7933), pages 687-692, October.
    35. Bel, Germà & Gradus, Raymond, 2016. "Effects of unit-based pricing on household waste collection demand: A meta-regression analysis," Resource and Energy Economics, Elsevier, vol. 44(C), pages 169-182.
    36. Bhagyashree Katare & Dmytro Serebrennikov & H. Holly Wang & Michael Wetzstein, 2017. "Social-Optimal Household Food Waste: Taxes and Government Incentives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(2), pages 499-509.
    37. Andrés Musalem & Marcelo Olivares & Eric T. Bradlow & Christian Terwiesch & Daniel Corsten, 2010. "Structural Estimation of the Effect of Out-of-Stocks," Management Science, INFORMS, vol. 56(7), pages 1180-1197, July.
    38. Katharine Ricke & Laurent Drouet & Ken Caldeira & Massimo Tavoni, 2018. "Country-level social cost of carbon," Nature Climate Change, Nature, vol. 8(10), pages 895-900, October.
    39. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1415-1464.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Syed, Tahir Abbas & Aslam, Haris & Bhatti, Zeeshan Ahmed & Mehmood, Fahad & Pahuja, Aseem, 2024. "Dynamic pricing for perishable goods: A data-driven digital transformation approach," International Journal of Production Economics, Elsevier, vol. 277(C).
    2. Karsten Hansen & Kanishka Misra & Robert Evan Sanders, 2024. "Uninformed Choices in Perishables," Marketing Science, INFORMS, vol. 43(4), pages 751-777, July.
    3. White, Katherine & Cakanlar, Aylin & Sethi, Shakti & Trudel, Remi, 2025. "The past, present, and future of sustainability marketing: How did we get here and where might we go?," Journal of Business Research, Elsevier, vol. 187(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aguirregabiria, Victor & Guiton, Francis, 2022. "Decentralized Decision-Making in Retail Chains: Evidence from Inventory Management," CEPR Discussion Papers 17149, C.E.P.R. Discussion Papers.
    2. Karsten Hansen & Kanishka Misra & Robert Evan Sanders, 2024. "Uninformed Choices in Perishables," Marketing Science, INFORMS, vol. 43(4), pages 751-777, July.
    3. Diego Aparicio & Duncan Simester, 2022. "Price Frictions and the Success of New Products," Marketing Science, INFORMS, vol. 41(6), pages 1057-1073, November.
    4. Ali Hortacsu & Olivia R. Natan & Hayden Parsley & Timothy Schwieg & Kevin R. Williams, 2021. "Incorporating Search and Sales Information in Demand Estimation," Cowles Foundation Discussion Papers 2313R1, Cowles Foundation for Research in Economics, Yale University, revised Mar 2023.
    5. James D. Dana Jr. & Kevin R. Williams, 2018. "This paper develops an oligopoly model in which firms first choose capacity and then compete in prices in a series of advance-purchase markets. We show the existence of multiple sales opportunities cr," Cowles Foundation Discussion Papers 2136R4, Cowles Foundation for Research in Economics, Yale University, revised Nov 2021.
    6. James D. Dana & Kevin R. Williams, 2022. "Intertemporal Price Discrimination in Sequential Quantity-Price Games," Marketing Science, INFORMS, vol. 41(5), pages 966-981, September.
    7. Ioannis Stamatopoulos & Naveed Chehrazi & Achal Bassamboo, 2019. "Welfare Implications of Inventory-Driven Dynamic Pricing," Management Science, INFORMS, vol. 65(12), pages 5741-5765, December.
    8. Günter J. Hitsch & Sanjog Misra & Walter W. Zhang, 2024. "Heterogeneous treatment effects and optimal targeting policy evaluation," Quantitative Marketing and Economics (QME), Springer, vol. 22(2), pages 115-168, June.
    9. Ali Hortacsu & Olivia R. Natan & Hayden Parsley & Timothy Schwieg & Kevin R. Williams, 2021. "Incorporating Search and Sales Information in Demand Estimation," Cowles Foundation Discussion Papers 2313, Cowles Foundation for Research in Economics, Yale University.
    10. Ali Hortacsu & Olivia R. Natan & Hayden Parsley & Timothy Schwieg & Kevin R. Williams, 2021. "Organizational Structure and Pricing: Evidence from a Large U.S. Airline," Cowles Foundation Discussion Papers 2312R, Cowles Foundation for Research in Economics, Yale University, revised Mar 2022.
    11. Ali Hortacsu & Olivia R. Natan & Hayden Parsley & Timothy Schwieg & Kevin R. Williams, 2021. "Organizational Structure and Pricing: Evidence from a Large U.S. Airline," Cowles Foundation Discussion Papers 2312R3, Cowles Foundation for Research in Economics, Yale University, revised Jan 2023.
    12. Michele Fioretti & Junnan He & Jorge Tamayo, 2024. "Prices and Concentration: A U-Shape? Theory and Evidence from Renewables," Working Papers hal-04631762, HAL.
    13. Alexander Erlei & Mattheus Brenig & Nils Engelbrecht, 2024. "Consumer Behavior under Benevolent Price Discrimination," Papers 2404.03581, arXiv.org.
    14. Ali Hortacsu & Olivia R. Natan & Hayden Parsley & Timothy Schwieg & Kevin R. Williams, 2021. "Organizational Structure and Pricing: Evidence from a Large U.S. Airline," Cowles Foundation Discussion Papers 2312R4, Cowles Foundation for Research in Economics, Yale University, revised Jun 2023.
    15. Valente, Marica, 2023. "Policy evaluation of waste pricing programs using heterogeneous causal effect estimation," Journal of Environmental Economics and Management, Elsevier, vol. 117(C).
    16. Antonella Tomasi & Giovanna Messina, 2021. "Wasted in waste? The benefits of switching from taxes to Pay-As-You-Throw fees: The Italian case," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2021(2), pages 7-38.
    17. Bueno, Matheus & Valente, Marica, 2019. "The effects of pricing waste generation: A synthetic control approach," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 274-285.
    18. Carattini, Stefano & Baranzini, Andrea & Lalive, Rafael, 2018. "Is Taxing Waste a Waste of Time? Evidence from a Supreme Court Decision," Ecological Economics, Elsevier, vol. 148(C), pages 131-151.
    19. Diego Aparicio & Zachary Metzman & Roberto Rigobon, 2024. "The pricing strategies of online grocery retailers," Quantitative Marketing and Economics (QME), Springer, vol. 22(1), pages 1-21, March.
    20. Ali Hortacsu & Olivia R. Natan & Hayden Parsley & Timothy Schwieg & Kevin R. Williams, 2021. "Organizational Structure and Pricing: Evidence from a Large U.S. Airline," Cowles Foundation Discussion Papers 2312R2, Cowles Foundation for Research in Economics, Yale University, revised Oct 2022.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormksc:v:43:y:2024:i:2:p:289-316. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.