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Getting Something From Nothing: An Investigation of Beef Demand Expansion and Substitution in the Presence of Quality Heterogeneity

Author

Listed:
  • Gunderson, Michael A.
  • Lusk, Jayson L.
  • Norwood, F. Bailey

Abstract

A relative increase in demand for quality can have one of two potentially countervailing effects: it can cause substitution of one quality for another and/or it might expand overall demand by bringing new consumers into the market. This article investigates demand expansion and substitution among beef qualities by exploiting the use of a no-purchase option in a nonhypothetical choice experiment involving real food and real money. A random parameters logit model, which permits very flexible substitution patterns, is used to show that expanding demand for high quality rib-eye steak increases revenue by a greater degree than expanding demand for low quality steak. Regardless of whether high or low quality demand is expanded, the expansion effect dominates the substitution effect. We also show that the introduction of a new "natural" steak causes a greater reduction in market share for high quality than low quality beef, but despite this overall steak demand increases. These results have important implications for the manner in which collective advertising is conducted and for the effects of new product introductions on industry profitability.

Suggested Citation

  • Gunderson, Michael A. & Lusk, Jayson L. & Norwood, F. Bailey, 2005. "Getting Something From Nothing: An Investigation of Beef Demand Expansion and Substitution in the Presence of Quality Heterogeneity," 2005 Annual meeting, July 24-27, Providence, RI 19465, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea05:19465
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    File URL: http://purl.umn.edu/19465
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    References listed on IDEAS

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    5. Jayson L. Lusk & Jutta Roosen & John A. Fox, 2003. "Demand for Beef from Cattle Administered Growth Hormones or Fed Genetically Modified Corn: A Comparison of Consumers in France, Germany, the United Kingdom, and the United States," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(1), pages 16-29.
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    12. repec:feb:artefa:0069 is not listed on IDEAS
    13. Daniel McFadden & Kenneth Train, 2000. "Mixed MNL models for discrete response," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 447-470.
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    Keywords

    Demand and Price Analysis;

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