The Economics of a “portion size reduction” policy

Abstract

This study develops novel models of heterogeneous consumer preferences for different dining options and imperfect competition among food suppliers to analyze the market and welfare effects of portion size reduction (PSR) for food away from home. Different scenarios on the nature of differentiation of the dining options, the information available to consumers, and their response to links between portion size and obesity, food waste, and climate change are considered within this framework. The market and welfare effects of the policy are quantified using a simulation analysis. The analysis shows that the market and welfare effects of the policy are case-specific and dependent on the relative magnitude of the cost and utility effects of PSR, the strength of the consumer preference for dining out, and the food suppliers’ initial costs and degree of market power in the relevant markets. The policy can create winners and losers among consumers and accounting for consumer heterogeneity, as done in this study, is essential for capturing the asymmetric welfare effects of PSR. Intriguingly, consumers and suppliers can benefit from PSR even without accounting for any health or/and environmental benefits of reduced portion sizes.