Intended and unintended consequences of salient nutrition labels

Abstract

AbstractProfit maximizing firms sometimes engage in voluntary informative advertising, usually to promote their reputation as honest brokers. One example of informative advertising is shelf nutrition labels that some supermarket chains voluntarily provide. Several studies have shown that voluntary shelf nutrition and similar front‐of‐pack nutrition labels positively influence food purchasing patterns. Yet these studies assumed that suppliers are price takers. Using one shelf nutrition label, NuVal, as an example, we revisit this assumption. We take advantage of the natural experiment that occurred when NuVal substantially changed its underlying scoring algorithm. As the NuVal label represents an independent expert assessment of the health quality of each food product, this natural experiment allows for testing the causal effect of the information on demand and price changes independent of the hype that comes with the rollout of a new information policy. After endogenizing prices, we find that price changes offset nearly 42% of the direct effects of the score changes. This result shows the potential benefits of this form of voluntary information disclosure but also that most previous analyses of nutrition labeling overstated the benefits because they failed to account for supply responses.