What Is It About Organic Milk? An Experimental Analysis

Auction experiments were used to examine demand relationships and willingness to pay (WTP) for organic, rBST-free, no antibiotics used, and conventional milk. Elasticities showed strong substitute and complement relationships between organic, rBST-free, and no antibiotics varieties. The sum of the latter two's premiums were not significantly different than the organic premium, suggesting diminishing marginal utility for added attributes. Results from a two-stage heteroskedastic tobit model demonstrated that WTP premiums for the varieties differ significantly by demographics and beliefs regarding the conventional version. These suggest market segments for rBST-free and no antibiotics versions could succeed alongside organic, benefiting consumers and producers.