How Big Food Responds to Big Government

People who advocate for bans on large sodas, taxes on sugar and fat, and  mandatory calorie labels in restaurants often forget that food companies don't just sit idly by and follow the intentions of the policy makers.  Rather, firms (and even consumers) strategically respond to a new food environment - often in unanticipated ways.  

On that note, here is a paper that just appeared in the European Review of Agricultural Economics by four French researchers.   

They argue that:

. . . it is important to take into account the fact that food consumption decisions involve many dimensions related to price, taste, product convenience, health issues, etc. A consumer has to manage a trade-off between several product characteristics. Similarly, the firms have to deal with these multiple dimensions of food consumption in order to compete on a market in which the nutritional quality is just one of many criteria considered by consumers. The analysis of the economic effects of nutritional regulation must not neglect all of these dimensions as changes in the other (nonnutritional) product characteristics may be a response to nutritional policies which affects the welfare and the economic efficiency of nutritional regulation.


our results show that nutritional regulations may induce changes in consumers’ decisions and the product quality choices by firms, but they may also affect the competitive game. In an imperfect competition setting, firms react not only by adjusting price and product quality, but also by modifying the product variety available on the market and hence the level of substitutability between food products. This situation can lead to adverse effects from a public health perspective. Indeed, we show that if the tax rate is not well adjusted according to the quality threshold imposed to avoid taxation, it is possible to observe economic distortions that are not compensated by increased health benefits.