Academic journal article The Journal of Consumer Affairs

Information Asymmetry in Consumer Perceptions of Quality-Differentiated Food Products

Academic journal article The Journal of Consumer Affairs

Information Asymmetry in Consumer Perceptions of Quality-Differentiated Food Products

Article excerpt

Increasing consumer demand for quality-differentiated food products has given rise to a large quantity of food product classifications related to production practices and locations. Some food product claims such as native have no clear definitions and may have ambiguous connotations for different consumers. We analyze whether asymmetry in information affects consumer preferences and willingness to pay for ambiguous claims using the native attribute. An empirical application of pecans is used in the analysis to compare native and improved pecan varieties. With no evidence in the literature of additional benefits of native varieties, the results showed that consumers preferred native varieties. Furthermore tastes and preferences for all product attributes were heterogeneous; heterogeneity in preference for the native attribute was only significant at the 10% level.

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Increasing consumer demand for quality-differentiated food products has given rise to a large quantity of product classifications related to production practices and locations. Examples include organically grown or processed foods with organic ingredients (Batte et al. 2007; Bond, Thilmany, and Keeling Bond 2008; Loureiro and Hine 2002; Lusk and Briggeman 2009; Thompson 1998), free of genetically modified materials (Burton et al. 2001; Loureiro and Hine 2002; Lusk et al. 2001, 2005; Lusk, Roosen, and Fox 2003), hormone free (Umberger, Thilmany McFadden, and Smith 2009), fair labor (De Pelsmacker, Driesen, and Rayp 2005; Howard and Allen 2008; Loureiro and Lotade 2005), animal welfare (Taylor and Signal 2009), eco-labeled (Johnston et al. 2001; Loureiro, McCluskey, and Mittelhammer 2002; McCluskey and Loureiro 2003), locally grown (Bond, Thilmany, and Keeling Bond 2008; Carpio and Isengildina-Massa 2009; Darby et al. 2008; Dentoni et al. 2009; Toler et al. 2009), and U.S.-grown products (Loureiro and McCluskey 2000; Loureiro and Umberger 2003; Lusk and Anderson 2004). Studies have found supporting evidence that a major portion of consumers value these food product claims (McCluskey and Loureiro 2003; Onozaka and Thilmany McFadden 2011). Based on the premise that these products are different, consumers tend to perceive them as high-quality differentiated products, therefore increasing their willingness-to-pay (WTP). However, although some products offer greater benefits to the consumer or address altruistic behavior by dealing with positive externalities from the production process, this does not necessarily hold true for all product claims.

Typically, consumers make buying decisions based on their perceptions of quality. In the marketing literature, actual quality refers to measurable and verifiable superiority, which can differ from perceived quality. Perceived quality refers to the consumer's subjective judgment about the overall superiority of a product within a set of goods that are viewed as substitutes and would serve the same purpose (Zeithaml 1988). Foster and Just (1989) use the term cost of ignorance to refer to the difference in value between choices. Consumers incur a cost of ignorance if the value of the choices consumers would have made in retrospect had they been better informed (i.e., based on actual quality) is higher than the value of the choices they actually made with imperfect information (i.e., based on perceived quality). As exposed by Akerlof (1970) in his seminal paper, even if neoclassical economic theory depicts consumers as rational individuals that maximize utility on the basis of full information, there may still be market problems due to asymmetric information between buyers and sellers.

An analogous standpoint is that consumers may be rational in terms of the information available to them. In analyzing food markets, cognitive variables such as consumer opinions and beliefs have been found to have a great influence on preferences (Baker and Burnham 2001). In turn, product advertising and promotion play a major role in influencing these cognitive variables. …

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