Food Donations, Retail Operations, and Retail Pricing

John D. Lowrey (), Timothy J. Richards () and Stephen F. Hamilton ()
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John D. Lowrey: D’Amore-McKim School of Business, Northeastern University, Boston, Massachusetts 02115
Timothy J. Richards: Morrison School of Agribusiness, W. P. Carey School of Business, Arizona State University, Phoenix, Arizona 85212
Stephen F. Hamilton: Economics Department, Orfalea College of Business, California Polytechnic State University, San Luis Obispo, California 93407

Manufacturing & Service Operations Management, 2023, vol. 25, issue 2, 792-810

Abstract: Problem definition : For grocery retailers, managing perishable food that is nearing expiry is a major challenge. Donating food to food banks is socially responsible, as it improves local communities and reduces waste generation. It also diverts food to a secondary, quality-differentiated market. Academic/practical relevance : In this paper, we quantify the economic impacts of this secondary market for food by examining donation and pricing behaviors for competing retailers. Methodology : We use a structural model of price-discriminating oligopoly retailers to study the effect of food donations on store and category-level demand and equilibrium prices. Empirically, we estimate the food donation effect using a unique data set of food donations and sales for several categories of perishable foods across two major retail chains that compete in the same market. Results : The competitive effects of food donations follow from the price-discrimination logic. First, food donations create a direct demand effect. Donations raise the average quality of products on display, shifting demand curves inward and rotating them clockwise (e.g., more inelastic). Second, food donations create a market enhancement effect, softening price competition and raising equilibrium prices among competing retailers. Managerial implications : Food donations increase food prices and store profits, tying the socially responsible option to an economic benefit. This study contributes a new type of reuse operation to the literature on closed-loop supply chains.

Keywords: food donations; secondary market; competitive retailers; food waste (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:25:y:2023:i:2:p:792-810

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