Consumer Willingness to Pay for "Second-Generation" Genetically Engineered Products and the Role of Marketing Information

Article excerpt

Environmental and consumer groups have called for mandatory labeling of genetically engineered (GE) food products in the United States, stating that consumers have the "right to know." Herein, we use a nonhypothetical field experiment to examine the willingness to pay for GE-labeled products, using the only second-generation GE product currently on the U.S. market-GE cigarettes. Our results suggest consumers pay less for GE-labeled cigarettes when marketing information is absent. But, when presented with marketing information on the attributes of the cigarette, we find no evidence that consumers pay less for GE-labeled cigarettes.

Key Words: auctions, BDM mechanism, cigarettes, field experiment, genetically engineered foods, second-generation

JEL Classifications: C91, Q18

Genetic engineering remains a controversial issue. Opponents of genetically engineered (GE) food products have successfully publicized potential threats that could result from eating GE foods, such as environmental degradation, consolidated multinational power, human health threats (e.g., more allergic reactions), and uncertain long-term impacts (see, e.g., Friends of the Earth; Greenpeace 2001a,b,c). These concerns have prompted some nations, including those in the European Union, Australia, and Japan, to require firms to label all GE food products. In contrast, the United States does not require explicit labeling of GE products; rather, labeling in the United States is only required if the product has been modified to alter consumer characteristics. Products genetically engineered to alter the consumer characteristics of the products are called second-generation GE products. For these products, only the modified attribute needs to be identified.

Only one such altered second-generation GE product currently exists in the United States, Quest® cigarettes, a product introduced into the U.S. market in early 2003.1 Genetic engineering is used to reduce the level of nicotine, and three versions of these Quest cigarettes are now on the U.S. market (low nicotine, extra-low nicotine, and nicotine free).2 Using genetic engineering as a method to reduce the level of nicotine in tobacco should result in a more desirable product-at least from a smoking-enjoyment viewpoint-relative to conventional means to reduce nicotine levels, such as chemicals and bleaching. Under current regulations, the U.S. Food and Drug Administration (FDA) requires the company to label these new cigarettes-but the label needs only to indicate that the products are lower in nicotine. Federal law requires no explanation of the genetic engineering, only that the consumption characteristics of the product have changed.

We used experimental methods to examine adult smokers' willingness to pay for this second-generation GE product under a 2 × 2 informational design: (1) with and without a label indicating the cigarettes are GE and (2) with and without supplementary marketing information related to the consumer qualities of the new cigarettes. We conducted nonhypothetical field auctions at two grocery stores in the Midwest. To our knowledge, this study is the first to use experimental methods to determine consumer willingness to pay for secondgeneration GE products. This study is also the first to examine the effect of conventional marketing information on the demand for a GE-labeled product.3

We test three hypotheses: (1) in the absence of marketing information, bids for GE-labeled cigarettes are identical to bids for non-GE-labeled cigarettes; (2) when consumers are presented with marketing information, bids for GE-labeled cigarettes are identical to bids for non-GE-labeled cigarettes; and (3) bids for GE-labeled cigarettes when marketing information is presented are identical to bids for GE-labeled cigarettes when marketing information is not presented.

Background

Background on GE Labeling

Many countries require manufacturers to label GE products. …