EVOLUTION OF EUROPEAN GM-FREE STANDARDS: REASONING OF CONSUMERS AND STRATEGIC ADOPTION BY COMPANIES

Abstract

In this article, we discuss reasoning of consumers and strategic adoption behavior of producers and retailers with respect to genetically modified-free (GM-free) quality standards in Europe. We argue that there are three major reasons why a mandatory GM labeling scheme differs from a voluntary process-based GM-free labeling scheme regarding the effect on consumer demand: (1) while both mandatory and voluntary labels signal that products containing, or produced with genetically modified organisms (GMOs) are of lower quality, experiments show that the signaling effect is stronger in the case of mandatory labels; (2) some consumers care more about the effects of consuming GMOs directly (i.e., labeled GMO) compared to consuming only products derived from GMOs (i.e., non-labeled GM-free); and (3) mandatory labeling shifts some of the labeling burden to the GM producer making the GM product relatively more expensive compared to the case of voluntary GM-free labeling. We discuss reasons why producers or retailers set or implement a voluntary GM-free production standard. To illustrate how the firm adoption theory can be extended, we use a real option game framework in a duopolistic setting and show that it can be beneficial to offer a GM-free product without labeling it. We show that this can be the case if investing without labeling works as a pre-investment or option to extend to reduce the investment cost of implementing a label in the case of an increase in demand. Finally, we provide a list of important events that have affected the evolution of the GM-free market in Europe.

Keywords

• private quality standards
• voluntary label
• GM-free
• GMO
• real option game