Unintended Nutrition Consequences: Firm Responses to the Nutrition Labeling and Education Act

This paper investigates how firms responded to standardized nutrition labels on food products required by the Nutrition Labeling and Education Act (NLEA). Using a longitudinal quasi-experimental design, we test our predictions using two large-scale samples that span 30 product categories. Results indicate that the NLEA reduced brand nutritional quality relative to a control group of products not regulated by the NLEA. At the same time, among regulated products, brand taste increased. Although this reduction in nutrition represents an unintended consequence of regulation, there were a set of category, firm, and brand conditions under which the NLEA produced a positive effect on brand nutritional quality. We find that firms were more likely to improve brand nutrition when firm risk or firm power is low. Lower risk occurs when the firm is introducing a new brand rather than changing an existing brand, and weaker power in a category is reflected by lower market share in a category. Furthermore, firms competing in low-health categories (e.g., potato chips) or small-portion categories (e.g., peanut butter) improved nutrition more than firms competing in high-health categories (e.g., bread) or large-portion categories (e.g., frozen dinners). Recommendations for firm strategy and the design of consumer information policy are examined in light of these surprising firm responses.