An economic analysis of sizing constraints: Price discrimination and changes in welfare under the New York City soda ban

Brian A Bourquard, Purdue University

Abstract

This thesis uses profit maximizing techniques and nonlinear, second-degree price discrimination theory to describe changes in consumption and gains and losses in welfare of consumption under a container size constraint. It observationally examines the New York City soda ban to provide insight into retailer behavior in the event of such a ban, and examines three cases to highlight potential retailer decisions to compensate for a ban: to continue using a restricted menu of pricing options; to sell only to high type soda consumers; or to serve both markets with a one-size-fits-all strategy. This thesis finds that the ban generally reduces aggregate consumption welfare, without addressing losses in consumer choice – retailers will profit less, low type consumers will continue to capture zero or near zero surplus, and high type consumers experience changes in welfare dependent on the case. In one case they experience a loss of captured surplus, in one case they experience no change, and in a third case, they experience an ambiguous change. Soda consumption generally declines in two of the examined cases. As sweetened beverage consumption is directly linked to obesity, reduced consumption may lead to lower incidence of associated metabolic disorders.

Degree

M.S.

Advisors

Wu, Purdue University.

Subject Area

Economics|Economic theory|Nutrition

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