Consumer sustainability tradeoffs between imported and domestic products

With increasing food budgets, consumers look for healthier and better food products to add to their diets. For some consumers, imported food products provide an entry into global food consumption trends. As the market for imported products increases, locally produced alternatives appear at lower prices due to lower transportation costs and the lack of import duties. Even though the perceived utility is higher for imported products, these products also come at a higher cost to the environment due to transport emissions. For an environmentally conscious consumer, production and transportation emissions reduce the overall willingness to pay. However, it is not clear if the final price the consumer is willing to pay would be higher for an imported product or a domestic product. This paper provides a utility-based model to understand how consumers navigate these tradeoffs while factoring in the emissions of the products. More specifically, two firms providing domestic vs. imported products with carbon footprints compete in the end-market in price competition. The model provides market outcomes based on consumer characteristics and firms’ optimal pricing. Both products can jointly exist in the market when there is a considerable difference in the carbon footprint. When the carbon footprint of both products is similar, exclusive product markets emerge. In a joint market, a higher emissions (either transportation or manufacturing) lead to lower prices and increased market participation, even under consumer environmental preferences.