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Consumer choice of food products and the implications for price competition and government policy

  • Eliza M. Mojduszka

    (Department of Resource Economics, 215 Stockbridge Hall, University of Massachusetts, Amherst, MA 01003)

  • Julie A. Caswell

    (Department of Resource Economics, 215 Stockbridge Hall, University of Massachusetts, Amherst, MA 01003)

  • J. Michael Harris

    (Economic Research Service, U.S.D.A., 1800 M St., N.W., Washington, DC 20036)

In this paper we develop a random coefficients discrete choice model to investigate what affected consumer demand for prepared frozen meals from 1993 to 1998, when government regulation of nutrition labeling changed from voluntary to mandatory. The model links individual consumer characteristics (e.g., income, knowledge about nutrition, nutrition label use) to underlying product characteristics (e.g., price, nutritional attributes) and allows us to obtain preference parameters for each consumer as well as demand elasticities with regard to product characteristics for each product considered. We find that prices, advertising, price reductions, and consumer preferences for taste have a significant effect on the demand for prepared frozen meals whereas concerns and knowledge about nutrition and health do not. Using the estimated demand parameters we then evaluate price competition in the industry and the impact of the new mandatory labeling policy. The results show that collusive pricing behavior by manufacturers is not supported by our data and that the 30% margins in the industry are due to the exercise of unilateral market power and differentiation strategies. The results also show that consumer preferences and purchasing patterns within prepared frozen meals category did not change significantly after the implementation of mandatory nutrition labeling. [EconLit codes: Q130, L110, L150]. © 2001 John Wiley & Sons, Inc.

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Article provided by John Wiley & Sons, Ltd. in its journal Agribusiness.

Volume (Year): 17 (2001)
Issue (Month): 1 ()
Pages: 81-104

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Handle: RePEc:wly:agribz:v:17:y:2001:i:1:p:81-104
Contact details of provider: Web page: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1520-6297

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  1. Pakes, Ariel S, 1986. "Patents as Options: Some Estimates of the Value of Holding European Patent Stocks," Econometrica, Econometric Society, vol. 54(4), pages 755-84, July.
  2. Perloff, Jeffrey M & Salop, Steven, 1984. "Equilibrium with product differentiation," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4cq0m6s3, Department of Agricultural & Resource Economics, UC Berkeley.
  3. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  4. Jerry A. Hausman, 1994. "Valuation of New Goods under Perfect and Imperfect Competition," NBER Working Papers 4970, National Bureau of Economic Research, Inc.
  5. Simon P. Anderson & Andre de Palma & Jacques-Francois Thisse, 1987. "Demand for Differentiated Products," Discussion Papers 726, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
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