Consumer Responses to Voluntary Nutrition Labeling in the Presence of Information Spillovers

Abstract

Consumers often rely on product quality disclosures to make their purchase decisions. Voluntary nutrition labeling (VNL), a means of nutrition quality disclosure, was introduced in the last decade by leading food manufacturers and selected food retailers. To the extent that consumers make inferences based on VNL disclosures as they consider buying non-VNL food products, information spillovers occur. However, previous studies on the effectiveness of VNL programs have not considered information spillover effects. In this study, we examine consumer responses to VNL by incorporating both product participation and information spillover effects. Empirical results from the U.S. ready-to-eat cereal market confirm a positive participation effect of VNL and a strong negative spillover effect on non-VNL products (non-participating food products), especially those that are relatively unhealthy (high in sugar, saturated fat and/or sodium). These findings indicate that ignoring the effects of VNL information spillovers in models of consumer choices may lead to underestimation of the impact of VNL on consumer valuation of participating products and overestimation of consumer valuation of non-participating products, suggesting that an incentive in a firm’s voluntary participation in self-regulated labeling programs may be to avoid negative treatment externalities. Overall, this article shows the importance of including spillover effects in the evaluation of VNL programs and that VNL could play a positive role in improving the healthiness of consumer choices.