Pricing Strategy for GM Food: Impact of Consumer Attitude Heterogeneity and GMO Food Labelling

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Author Information : Rong Li (Whitman School of Management, Syracuse University)
Amiya Basu (Whitman School of Management, Syracuse University)

Year of Publication : Annals of Operations Research (2019)

Summary of Findings : We find that the upcoming GMO food labeling enforcement and its impact on consumers' heterogenous attitude toward GM food largely affect the GM food marketer's pricing decisions.

Research Questions : How does the upcoming GMO food labeling affects the GM food marketer's pricing strategy?

Does the industry pricing tradition (fixed or dynamic) add additional effects to the pricing strategy?

Does market competition (duopoly) add additional effects to the pricing strategy?

What we know : We learn that the upcoming GMO food labeling enforcement (labeling) changes the pricing strategy of a monopoly GM food marketer (marketer/he) when he targets the consumers who dislike GM or are uninformed (not being able to identify GM food). Under dynamic pricing tradition, the labeling may increase the price if it makes uninformed consumers informed and like GM. Under fixed pricing tradition, the marketer assumes more pressure and may offer a discount for the GM-traits (compared to the comparable non-GM food) and take a profit loss post labeling. Market competition generally reduce the GM food price and the marketers will choose dynamic pricing under equilibrium.

These results help the government better quantify the impact of the GMO food labeling law and social welfare. If the labeling leads to the food price increase, it may hurt the social welfare.

Novel Findings : The common belief is that the upcoming GMO labeling law will make GM food unfavorable and may reduce its price. However, we find that the opposite may happen --- it may raise the price as labeling increases operational costs and may make uninformed consumers informed and like GM (due to, for example, the positive media influence).

Novel Methodology : This is the first analytical paper which studies the impact of the upcoming GMO food labeling law and the heterogenous consumer attitude toward GM food (especially how it changes upon labeling) on the GM food pricing.

Implications for Practice : This research helps business to foresee the impact of the upcoming GMO food labeling enforcement on their consumers and be prepared.

Implications for Policy: The FDA is now working on the GMO labeling enforcement details. This research can help them categorize GM food products according to consumers' attitude and apply appropriate enforcement details to avoid or enable GM food price increase.

Implications for Society: This research helps the society become aware of the potential impact on the GM food pricing and also the pricing of non-GM food.

Implications on Research: This research opens doors to more future research on how the GM-food price affects the non-GM food price, how the GM-food price strategy change affects the production quantity and quality, etc.

Full Citations : Li, R. and A. Basu. 2019. Pricing Strategy for GM Food: Impact of Consumer Attitude Heterogeneity and GMO Food Labelling. Annals of Operations Research.

Abstract : We consider how a marketer of a GM food product should price it in response to the requirement of GMO food label in the near future and its effect on consumers’ heterogenous attitude. We examine how the GM food pricing is affected by different consumer attitudes towards GM-food (Like, Uninformed, and Dislike), the GMO food labelling to be enforced, and price competition. On the one hand, the GM food seller should expect to raise price after the GMO food labelling to cover the additional cost incurred on labelling. On the other hand, the seller may need to reduce price after labelling as the Uninformed consumers’ attitude may change and become negative once the labelling is available. The tradeoff of these two effects yields interesting results. For example, we find that a monopolist GM food seller may choose to charge a high price, i.e., charge a premium for the GM-traits, and maintain at this price even after the labelling is enforced. Managerial implications and future research directions are discussed.

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The common belief is that the upcoming GMO labeling law will make GM food unfavorable and may reduce its price. However, we find that the opposite may happen — it may raise the price as labeling increases operational costs and may make uninformed consumers informed and like GM (due to, for example, the positive media influence).

Rong Li

Assistant Professor of Supply Chain Management at Martin J. Whitman School of Management
Rong Li is an assistant professor of supply chain management whose research interests include operations and finance interfaces, supply chain coordination and contracting, inventory management and maintenance with learning from real-time information. Dr. Li received a B.S. in mathematics from Nankai University, and M.S. and Ph.D. in industrial engineering from Purdue University.
Rong Li
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