The study develops an analytical framework of heterogeneous consumers and imperfectly competitive suppliers to (a) examine the determinants of the market acceptance of a food nanotechnology innovation; (b) identify the exact conditions under which the innovation will be ineffective, nondrastic, and drastic; and (c) determine the effects of this technology on the interest groups involved. Analytical results show that high consumer valuations of the enhanced attributes enabled by nanotechnology can lead to consumer acceptance of nanofoods even when consumers are more averse to nanotechnology than conventional food technology. In most cases, the introduction of food nanotechnology leads to reduced quantities and prices of conventional and organic products, which result, in turn, in losses for nonadopting suppliers and benefits for all consumers. The greater is the degree of market power of food suppliers, the greater the reduction in the prices of conventional and organic products and the greater the losses of these suppliers due to the introduction of the food nanotechnology innovation. While all consumers can benefit from the introduction of nanofood innovations, the effect of these innovations on consumer welfare is asymmetric, with the group of consumers benefiting the most being case-specific and dependent on the relative quality ranking of the nanofoods and their conventional counterparts.

The paper examines the economic effects of labeling of food nanotechnology products using an analytical framework of heterogeneous consumers and imperfectly competitive suppliers. Labeling results in increased costs for nanofood producers that in turn increase nanofood prices and reduce their market demand; the cost effect of the labeling policy. Labeling also affects consumer preferences, the preference effect, by reducing uncertainty regarding the nature of the food product (certainty effect), and by potentially being perceived as a warning signal (stigma effect). The market and welfare impacts of nanofood labeling depend on which of the above effects dominate. If consumer aversion towards food nanotechnology increases due to labeling, nanofood suppliers incur losses to the benefit of suppliers of conventional and organic food substitutes and welfare decreases for most of consumers. Consumers who experience greater losses are those with relatively high aversion to interventions in the production process. On the other hand, if the labeling regime results in consumers becoming less averse to food nanotechnology and the preference effect dominates the cost effect, then nanofood suppliers see their profits increase. The economic impacts of nanofood labeling are intensified when consumers have low awareness of food nanotechnology prior to the implementation of the labeling policy and/or when competition among food suppliers is more intense.

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