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UBC Theses and Dissertations

Market failure and food claims : an assessment of the utilization of the exaggerated product claim by food manufacturers and consumers Wiseman, Kelleen L.


Regulations for on-package information and voluntary claims are designed to improve the flow of information between food manufacturers and consumers. Of particular importance are exaggerated product claims, where a claimed product is of higher quality nutritionally with regard to the claimed nutrient(s), but lower quality with regard to other nutrients (e.g., it contains more of a less healthy nutrient, or lower amounts of a desirable nutrient). The objective of this research is to assess the extent to which exaggerated product claims result in market failure in the processed food market. This grocery product study of food claims and nutrient levels uses a multi-method research design that includes an economic model (simulation study), empirical analysis and focus group study. The economic model reveals that an exaggerated product claim can increase a firm’s profit if the number of consumers who are significantly influenced by such a claim is sufficiently large relative to the level of less-healthy nutrients in the product implying an incentive for firms to exploit asymmetric information. The empirical analysis demonstrates that exaggerated product claims exist in the marketplace in the following formats: products with a saturated fat claim or cholesterol claim tend to have higher sodium levels; products with a fat claim tend to have higher sugar levels; and products with a sugar claim, sodium claim or omega-3 claim tend to have higher fat levels, on average, all relative to products without these claims. These outcomes support the results from the simulation study that exaggerated product claims can be a profit-maximizing strategy for firms. The focus group study demonstrates that consumers have difficulties utilizing on-package information and are vulnerable to exaggerated product claims and again this implies market failure due to asymmetric information. Implications include a need to review public policy regarding claim usage on processed foods, consumers experiencing negative diet-health effects and negative claim bias and both firms’ and governments’ having a decreased ability to use claims as a communication tool.

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