Price discrimination in organic food markets: the case of ready-to-eat cereal

In this paper, price discrimination with respect to the organic attribute in the ready-to-eat cereal industry is quantified. I estimate a random coefficient discrete choice demand model to obtain the price-elasticity of each product. Then, with the estimated elasticities and a supply model, I recover the marginal costs, which allows to disentangle whether the amount of price difference between organic and non-organic products is due to price discrimination or due to different production costs. I find that around 6% of the price difference is due to price discrimination with respect to this attribute. Counterfactual exercises show that: i) a tax on nonrganic products is welfare detrimental and does not substantially reduce price discrimination; ii) price discrimination happens due to the existence of high income households.