Three Essays on the Health-Related Product Attributes and Consumer Purchasing Behavior: An Application to Ready-to-Eat Breakfast Cereal Market

Open Access
Li, Jing
Graduate Program:
Agricultural, Environmental and Regional Economics
Doctor of Philosophy
Document Type:
Date of Defense:
June 09, 2016
Committee Members:
  • Edward C. Jaenicke, Dissertation Advisor
  • Edward C. Jaenicke, Committee Chair
  • Spiro E. Stefanou, Committee Member
  • Stephan J. Goetz, Committee Member
  • Joris Pinkse, Outside Member
  • Alessandro Bonanno, Special Member
  • Consumer Demand
  • Healthy Product Attributes
  • Distance Metric Method
  • Consumer Welfare
  • Producer Surplus
  • Preference for Variety
This dissertation focuses on exploring the relationship between health-related product characteristics and consumers' purchase behaviors in the ready-to-eat breakfast cereal market. It consists of three related topics as follows: Essay One: Demand for Ready-to-Eat Cereals with Household-level Censored Purchase Data and Nutrition Label Information: A Distance Metric Approach In this essay, we investigate the demand for ready-to-eat breakfast cereals in the U.S. using censored, household-level purchase data matched with product-level nutrition data. Instead of using a multi-equation based approach, we propose an alternative approach that relies on Pinkse, Slade, and Brett’s (2002) distance metric method, which is highly practical and less burdensome computationally than some multiple-equation methods. Among other results, we find that households with children are less price sensitive to cereals with whole grain as the first ingredient and to cereals that contain a higher number of fortified vitamins. Additionally, we find that households tend to switch between products with similar fiber content and whole grain content profiles. Essay Two: Quantifying the Welfare Effect of Changing Healthy Attributes in the Ready-to-Eat Cereal Market This essay quantifies the welfare impact of changing healthy attributes of ready-to-eat cereal products. We develop a equilibrium model of production and demand, incorporating the optimal demand choice of consumers facing multiple products in the market and optimal pricing strategy for multi-product firms. We use this model to evaluate how changing healthy attributes in the ready-to-eat cereal market affects consumer welfare, producer surplus, and total welfare, taking into account that product prices and consumer demand are endogenous in the equilibrium. We find that improving healthy product attributes has a substantial impact on consumer welfare, producer surplus, and total welfare, but these changes may not necessarily be positive. The results reflect how consumer demand and production costs change when nutritional content changes. Essay Three: How Important is Preference for Variety in Consumer Demand: Evidence from Ready-to-Eat Cereal Market In this essay, we investigate the role preference for variety in shaping consumer demand and how the preference for variety varies by household characteristics, by estimating a model of heterogeneous consumers' demand. The model allows consumers to choose a subset of products to consume, and if any, by how much for each product, based on their interdependent direct preferences for product attributes and their preferences for variety. The purchasing record of ready-to-eat breakfast cereal at the household level from Nielsen Homescan data provides a natural field to quantify the effect of preference for variety. Estimation results show that preference for variety is important for understanding consumer demand. Removing consumer preference for variety would leads to a loss of market size by about 26%. The effect is heterogeneous on different products.