The Supply of Health in Food: The Economics of Innovation Behaviour, Brand Competition and Changing Consumer Preferences

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Against the background of rising nutrition-related diseases such as obesity, type-II-diabetes, and arteriosclerosis, advancing healthier lifestyles is a highly relevant health policy issue. The food industry and retailers play a key role in this context, since they decide on formulation and prices of process food products supplied. However, from an economic perspective, it is still poorly understood which incentives firms face to offer products with a high health value and how these incentives are affected by consumer preferences, policy interventions and competition. The objective of this project is to investigate health-relevant firm behaviour related to product reformulation and pricing and to draw conclusions for policies and welfare. The analysis rests on advanced econometric methodologies and concepts from industrial organization. Comprehensive data on new product introduction and sales of a large retailing company provide the basis to estimate differentiated brand-level demand systems. Specific impacts of nutrient profiles and health and nutrition claims on substitutive processes will be examined by means of the distance metrics-approach. These estimates are then used together with cost information to establish a structural market model which allows modelling of pricing and innovation strategies under different policy and competition scenarios and changing consumer preferences.