Pauls Valley, OK, Pauls Valley Democrat

Business

September 12, 2012

Slate: Don't ban Big Gulps

(Continued)

So the fact that New Yorkers pay uniform milk prices and San Franciscans don't has nothing to do with the tastes of the cities' residents, but rather the regulations imposed on their dairy markets. (And there are many places where prices are set as they are in New York, and many other places where prices are set as they are in San Francisco.) So it's possible to assess the effect of milk prices on milk purchases by comparing the two groups.

The research team_Romana Khan of Ozyegin University in Istanbul, Kanishka Misra of the London Business School, and Vishal Singh of NYU_collected scanner data from over 1,700 supermarkets for 2001 to 2006 to examine how milk-buying patterns differ around the country depending on whether lower-fat varieties of milk are cheaper than whole milk or exactly the same price. Focusing on gallon containers of store-brand labels, they find that even relatively modest price differentials between whole and 2 percent can shift purchasing behavior: For consumers in the bottom 20 percent of the income distribution, even a price difference of 5 percent or less between whole and 2 percent reduces whole milk's overall market share by 20 percent. For these low-income buyers, a 15 percent price gap cuts the whole milk's share in half_from 52 to 25 percent. Rich consumers_in the top 20 percent of the income distribution_buy a lot less whole milk than poor consumers even when its price is no higher than other milk. But even these high earners engage in milk comparison shopping: a 15 percent price differential between whole and 2 percent drops the market share of whole milk from 25 to 15 percent.

Are consumers simply replacing nutritious yet caloric whole milk with empty-caloried soda? Across regions with different milk-pricing formulas, there's no difference in the consumption of soda: It's simply higher across the board for lower-income shoppers. (This also serves to reinforce the plausibility of one the study's biggest assumptions: that regions with variable milk pricing don't have other attributes that might account for higher consumption of lower calorie milk. It's not as if people in San Francisco drink more soda than people in New York.)

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