Pricing of eco-labels with retailer heterogeneity

Abstract

Eco-labels are important features of many natural resource and food markets. They certify that a product has some desirable unobserved quality, typically related to a public good such as being sustainably produced. Two issues that have received limited attention are whether pricing varies across different eco-labels that may compete with each other and to what extent different retailers charge different prices. Using a unique data set of salmon prices in eight different United Kingdom retail chains, we investigate these issues by estimating a price-attribute model that includes two eco-labels and one country-of-origin label. Results show substantial variation in the prices of the different eco-labels and that eco-label premiums vary across retail chains. Specifically, salmon certified with the Marine Stewardship Council (MSC) label has a high premium in low-end retail chains but no statistically significant premium in the high-end chains. These findings question the ability of the MSC label to transmit consumer willingness-to-pay for public goods through the supply chain to incentivize sustainable management. In contrast, premiums for organic certification are similar in magnitude across retailer types. In general, failure to account for retailer heterogeneity will over-or under-estimate a label's premium. 2 Pricing of Eco-labels with Retailer HeterogeneityAbstract Eco-labels are important features of many natural resource and food markets. They certify that a product has some desirable unobserved quality, typically related to a public good such as being sustainably produced. Two issues that have received limited attention are whether pricing varies across different eco-labels that may compete with each other and to what extent different retailers charge different prices. Using a unique data set of salmon prices in eight different United Kingdom retail chains, we investigate these issues by estimating a price-attribute model that includes two eco-labels and one country-of-origin label. Results show substantial variation in the prices of the different eco-labels and that eco-label premiums vary across retail chains. Specifically, salmon certified with the Marine Stewardship Council (MSC) label has a high premium in low-end retail chains but no statistically significant premium in the high-end chains. These findings question the ability of the MSC label to transmit consumer willingness-to-pay for public goods through the supply chain to incentivize sustainable management. In contrast, premiums for organic certification are similar in magnitude across retailer types. In general, failure to account for retailer heterogeneity will over-or under-estimate a label's premium.

The Sustainable Seafood Movement Is a Governance Concert, with the Audience Playing a Key Role

“…Studies about ecolabeling in forestry and other sectors note that ecolabels do not generate a clear incentive for ecolabeling through price premiums, echoing findings in seafood. In many cases, ecolabels are treated as a way to build and protect reputation with credible third-party information about social responsibility rather than as a way to directly increase revenue [26,31,33].…”

“…One study of pricing in seafood ecolabelling gives an overview of the communication strategies that may be at play in retailers' use of ecolabelling: retailers may be using ecolabels to differentiate themselves from other retailers; they may use them to imply that all products in the store are similarly sustainable; they may use them as loss leaders as part of a broader profit maximization strategy to bring consumers into stores; and they may form part of a broader corporate responsibility campaign to project a positive corporate image [26]. For example, Walmart and McDonalds have several times pledged that all their wild-caught seafood products will be MSC labelled, and in 2015 Ikea made a similar claim [76][77][78].…”

“…Notwithstanding the prevalence of this logic model, some researchers question the efficacy of consumer-oriented research tools [25] and price incentives [26]. An "attitude-behaviour gap" has been used to describe how, in the case of sustainable food consumption, attitudes alone are often a poor predictor of how consumers will behave at the checkout [27].…”

Fish farmers and regulators coping with the wickedness of aquaculture

“…These third-party certification organizations and their standards can partly be seen as a response to the challenge of finding a common knowledge base and consensus on the effects of aquaculture production activities, and the inability of governments to develop policies and regulations that satisfy important stakeholders. For aquaculture producers, such standards facilitate access to demanding buyers, but they may also provide a higher price (Roheim, Sudhakaran, & Durham, 2012;Uchida, Onozaka, Morita, & Managi, 2014;Asche, Larsen, Smith, & Young, 2015).…”

Eco-Label Certification: A Case Study of the Campeche Shrimp Fishery, Mexico

“…While a price premium has occurred in some cases (Roheim et al 2011, SognGrundvåg et al 2013, Blomquist et al 2014, in others this premium has not been realized (Wakamatsu 2014, Asche et al 2015. Proponents, however, argue that an eco-label on seafood should be considered chiefly as a "market guarantee," even in difficult times for trade, as the demand for eco-labelled fishery products is generally less volatile than demand for conventional seafood (CBI 2016).…”