Three essays on differentiated products and heterogeneous consumer preferences: the case of table eggs

Abstract

Consumers’ food demand has been found to be affected not only by prices and income, but also by their increasing concern about factors like health benefits, animal welfare, and environmental impacts. Thus, many food producers have differentiated and advertised their products using relevant attributes. The increasing demand and supply of differentiated food products have raised questions regarding consumer preferences and producer strategies. This dissertation consists of three essays and empirically examines the egg market to shed light on related issues. The first question that this study aims to answer is whether consumers are willing to pay a premium for livestock and dairy products associated with improved animal welfare. Consumers’ attitude towards such products not only affect manufacturers’ production decisions, but also influence policy makers and current legislations. Using a national online survey with choice experiments, the first essay found that consumers in the study sample valued eggs produced under animal-friendly environment, suggesting incentives for producers to adopt animal welfare friendly practices. In an actual shopping trip, consumers usually need to choose from products with multiple attributes and labels. Studying how consumers with heterogeneous preferences process these information simultaneously and make decisions is important for producers to target interested consumer segments and implement more effective labeling strategies. In the second essay, a different national online survey was administered. The analysis using a latent class model categorized the sample respondents into four classes, and their preferences toward attributes and various label combinations differed across classes. Scanner data, which record actually purchased choices, are an important source of information to study consumer preferences. Diverging from the traditional demand approaches that are limited in studying differentiated product markets using scanner data, this study used a random coefficient logit model to overcome potential limitations and examine the demand relationship as well as price competition in the differentiated egg market. The third essay found that conventional and private labeled eggs yielded higher margins due to less elastic demand and cautioned producers of specialty eggs, which are usually sold at high prices despite their much more elastic demand.