The value and market effects of eco-labeled products in the Norwegian grocery market - An empirical analysis

Abstract

The existing research on eco-friendly purchasing relies heavily on stated preferences, which are commonly measured through consumer surveys based on hypothetical market settings. In this study, we instead utilize real purchasing data from a Norwegian grocery chain in order to uncover revealed preferences for ecolabeled products, more specifically products labeled with the Nordic Swan. We use multiple regression and a difference-in-differences analysis to quantify the effect the Nordic Swan has on the price and quantity sold of different consumables. Comparing this to previous findings of willingness to pay for eco-friendly products enables us to evaluate whether there exists a hypothetical bias in the market for these types of goods. We find an average price premium of 21 percent for products labeled with the Nordic Swan, in addition to an average increase in sales volumes of 3 percent. However, we find large variations across different product categories. Overall, our results coincide with findings in the existing literature and hence, this study does not provide ground to claim that there exists a hypothetical bias in the market for eco-friendly goods. The study concludes by urging grocery stores to increase their assortment of eco-labeled goods, not only due to the direct economic benefits they infer, but also due to the indirect effects eco-labeling has on a store’s reputation, demand and customer loyalty. Keywords: Eco-labeling; The Nordic Swan; Price Premium; Hypothetical bias; CSR; Market equilibrium; Willingness to Pay