Estimating consumer preferences for different beverages using the BLP approach

Area of Science:

• Health Economics
• Consumer Behavior Analysis
• Public Health Policy

Background:

• Overconsumption of sugar poses a significant public health challenge.
• Taxation of sugar-sweetened beverages (SSBs) is a potential policy intervention.
• Understanding consumer preferences and price sensitivity is crucial for effective SSB taxation.

Purpose of the Study:

• To estimate the price elasticity of demand for various beverages in Quebec.
• To inform the optimal implementation of SSB taxes.

Main Methods:

• Utilized the Berry, Levinsohn, and Pakes (BLP) random parameter logistic demand model.
• Employed Nielsen data (2010-2016) and the 2016 Canadian Census.
• Analyzed consumer preferences and price sensitivity for different beverage categories.

Main Results:

• Average consumers show a preference for high-calorie beverages, including those with fruits and vegetables.
• Estimated price elasticities of demand ranged from -4.40 for energy drinks to -1.59 for regular soft drinks.
• Energy drink consumers exhibited the highest reduction in consumption with price increases, while soft drink consumers showed the least.

Conclusions:

• An SSB tax in Quebec is projected to lead to a substantial decrease in overall consumption.
• The findings provide valuable insights for policymakers considering SSB taxation strategies.
• Differential price elasticities highlight varying consumer responses to potential tax-induced price hikes.