Information Effects on Consumers' Preferences and Willingness to Pay for a Functional Food Product: The Case of Red Ginseng Concentrate*

• DOI: http://doi.org/10.1111/asej.12090
• Author: Mo‐Se Bae,Rodolfo M. Nayga,Byeong‐il Ahn
• Date: 01 June 2016
• Published date: 01 June 2016

Information Effects on Consumers’Preferences

and Willingness to Pay for a Functional Food

Product: The Case of Red Ginseng Concentrate

*

Byeong-il Ahn, Mo-Se Bae and Rodolfo M. Nayga Jr.

Received 21 October 2013; Accepted 4 May 2015

This paper elicits consumers’preferences associated with attributes of a very

popular food product in Asia: red ginseng concentrate. The results of a choice ex-

periment suggest that an asymmetric information problem can cause consumers’

preferences and valuation for red ginseng concentrate to be significantly influenced

by objective information about the product’s attributes. The results imply that while

objective information can result in differential changes in valuation for different

product attributes, it can increase consumers’willingness to pay for red ginseng

concentrate. The paper also discuss important policy and marketing implications

from the results of the study.

Keywords: choice experiment, consumers’preferences, conditional logit, random

parameter logit, marginal willingness to pay.

JEL classification codes: D12, D82, Q13, M31.

doi: 10.1111/asej.12090

I. Introduction

Typically, food suppliers possess more information regarding the attributes of the

products they sell than the consumers who purchase them. This asymmetric

information results in inefficient resource allocations and distorts the price-

discovery mechanism (Akerlof, 1970). As in the food industry, we also observe

various asymmetric informational issues in other sectors such as insurance,

banking, second-hand car and the labour market. Since we can address the

asymmetric information problems by providing more information to the market,

examining consumer reactions with regard to food attributes has been one of

the important areas of research. Notable recent examples of such studies include

research on the impacts of labeling genetically modified food (Huffman et al.,

*Byeong-il Ahn (corresponding author): Department of Food and Resource Economics, Korea

University, Anam-dong Seongbuk-gu, Seoul 136-701, South Korea. Email: ahn08@korea.ac.kr. Bae:

LOTTE Mart, Olympic Road 269, Songpa-gu, Seoul 138-727, South Korea Email: bae-mo-se@nate.com

and Nayga: Department of Agricultural Economics and Agribusiness, University of Arkansas, Fayetteville

AR 72701, USA Email: rnayga@uark.edu; Adjunct professor, KoreaUniversity and Norwegian Institute of

Bioeconomy Research. This work was partially supported by the National Research Foundation of Korea

Grant funded by the Korean Government (2014S1A3A2044459).

© 2016 East Asian Economic Association and John Wiley & Sons Australia, Ltd

Asian Economic Journal 2016, Vol.30 No. 2, 197–219 197

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2003; Onyango et al., 2005), nanotechnology (Roosen et al., 2011), organic food

(Gifford and Bernard, 2011), newly developed seed varieties (Depositario et al.,

2009) and complex attributes of food (Gao and Schroeder, 2009). Most of these

studies investigate how consumers’willingness to buy or pay for changes when

additional food-attribute information is introduced.

Likewise, this study analyzes the effect of providing objective information

about product attributes on consumers’preferences and valuation for a

popular Asian functional food product: red ginseng concentrate. However,

our study focuses on a different case of market inefficiency due to asymmetric

information. As oppose to Akerlof that focused on the situation where suppliers

try to exploit the buyer’s lack of the quality information of the product (i.e. a

lemon market), our study focuses on a different situation where suppliers

fail to receive well-deserved profits due to the buyer’s ignorance of quality

information. In this case, the suppliers do not have an incentive to hide the

information, but rather would benefit from knowing whether consumers

would value their products more with objective information about the attri-

butes of their products.

We conduct two rounds of a choice experiment (CE). The first round is based

on consumers’personal beliefs and subjective information about the effectiveness

of ginseng concentrate, while the second round is conducted after the provision of

objective information about the product’s attributes. This setting, which allows us

to compare consumers’willingness to pay (WTP) for the same attributes of a

product on ‘before and after’basis differentiates our research from prior studies.

Our results imply that subjective perception about the attributes of the products

can result in lower WTP, while objective information can result in higher WTP

for the red ginseng product.

Red ginseng is representative of Asian functional food products. For example,

it occupies approximately 52 of the total functional food market in Korea, the

specific area of interest for this study. The popularity of ginseng stems from its

perceived health benefits in preventing obesity (Song et al., 2012; Lee et al., 2013),

curing diabetes (Kim and Kim, 2008; Vuksana et al., 2008; Hong et al., 2012),

strengthening the immune system (Xiaoguang et al., 1998; Park et al., 2010) and

preventing cancer (Lee et al., 1998). Among the ingredients of ginseng, saponin

is the most well-known for its efficacy to enhance one’s immune system

(Xiaoguang et al., 1998; Du et al., 2008; Hong et al., 2013).

When fresh ginseng is steamed and dried several times (nine times according to

the traditional method), it is converted into red ginseng. This process increases the

saponin concentration and makes it easier to be absorbed by the human body.

Korean red ginseng has been regarded as a high quality product for hundreds of

years, especially among East Asian consumers, on account of the health benefits

of consuming saponin (Sung et al., 2000). Internationally, Korean red ginseng

commands the highest prices in the ginseng market. Other benefits of consuming

red ginseng that have recently come to light include wrinkle prevention/elimination

and skin whitening (Kim et al., 2003; Kang et al., 2009; Kim et al., 2009).

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