Dynamic Pricing and Organic Waste Bans: A Study of Grocery Retailers' Incentives to Reduce Food Waste

Abstract

I analyze the welfare effects of two potential solutions to excess grocery-retail food waste: dynamic pricing and organic waste landfill bans. I use a structural econometric model with sales, perishability, and marginal cost data from a grocery chain’s artisanal bread category. My analysis of these counterfactuals shows that dynamic pricing Pareto-dominates an organic waste ban: Dynamic pricing reduces waste by 21% while increasing the chain’s gross margins and consumer surplus by 3% and 0.3%, respectively. In contrast, an organic waste ban, simulated by a ten-fold increase in disposal costs, reduces waste by only 4% and decreases profits and consumer surplus. Therefore, if regulators want to reduce grocery-store waste, they should incentivize chains to adopt dynamic pricing over imposing organic waste bans.

(Formerly titled "Reducing Retailer Food Waste through Revenue Management")

Keywords: dynamic pricing, environmental externality, food waste, organic waste ban, mandatory-recycling program

JEL Classification: D61, D62, H21, H23, Q58, D81