Pricing of eco-labels with retailer heterogeneity

• Published in: Food policy 2015-05, Vol.53, p.82-93
• Main Authors: Asche, Frank, Larsen, Thomas A., Smith, Martin D., Sogn-Grundvåg, Geir, Young, James A.
• Format: Article
• Language: English
• Subjects: Certification; Consumers; Eco-labels; Estimates; Food; Food marketing; Food policy; Labels; Markets; Natural resources; Prices; Public goods; Public services; Retail stores; Retail trade; Salmon; Seafood; Supply chains; Sustainability; United Kingdom; Willingness-to-pay
• ISSN: 0306-9192; 1873-5657
• DOI: 10.1016/j.foodpol.2015.04.004

•Eco-labels are analyzed in a unique dataset of salmon products in UK supermarkets.•The average retail price premium for Marine Stewardship Council (MSC) label is 13%.•Retailer-specific MSC premiums vary from 0% to 57%.•High-end retailers have lower premiums for MSC-labeled products.•The average premium for organic is 25% and premiums are similar across retailers. Eco-labels are important features of many natural resource and food markets. They certify that a product has some desirable unobserved quality, typically related to a public good such as being sustainably produced. Two issues that have received limited attention are whether pricing varies across different eco-labels that may compete with each other and to what extent different retailers charge different prices. Using a unique data set of salmon prices in eight different United Kingdom retail chains, we investigate these issues by estimating a price-attribute model that includes two eco-labels and one country-of-origin label. Results show substantial variation in the prices of the different eco-labels and that eco-label premiums vary across retail chains. Specifically, salmon certified with the Marine Stewardship Council (MSC) label has a high premium in low-end retail chains but no statistically significant premium in the high-end chains. These findings question the ability of the MSC label to transmit consumer willingness-to-pay for public goods through the supply chain to incentivize sustainable management. In contrast, premiums for organic certification are similar in magnitude across retailer types. In general, failure to account for retailer heterogeneity will over- or under-estimate a label’s premium.