Fast food, addiction, and market power

  • Richards T
  • Patterson P
  • Hamilton S
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Many attribute the rise in obesity since the early 1980s to the overconsumption of fast food. A dynamic model of a differentiated-product industry equilibrium shows that a firm with market power will price below marginal cost in a steady-state equilibrium. A spatial hedonic pricing model is used to test whether fast food firms set prices in order to exploit their inherent addictiveness. The results show that firms price products dense in addictive nutrients below marginal cost, but price products high in nonaddictive nutrients higher than would be the case in perfect competition.

Author-supplied keywords

  • Addiction
  • Brand loyalty
  • Fast food
  • Generalized method of moments
  • Hedonic pricing
  • Nutrients
  • Shadow values

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