Health claims as credence attributes

Specifically, we use national survey data of firms in the Canadian functional food and nutraceutical manufacturing sector to explore whether the notions of search, experience and credence characteristics help explain the desire of firms in the functional food and nutraceutical sector to use health claims. [...] We specifically explore whether the motivation for functional food and nutraceutical firms to use different types of claims is consistent with the notions of search, experience and credence characteristics of products, and the related difficulty in verifying the truthfulness of information on various product attributes (that is experience and/or credence characteristics) and the value of informing [...] To conceptualize this notion in the context of search (S), experience (E) and credence (C) characteristics of food products, first define a composition measure of the degree of these characteristics in a good as M. M is a single number representing the triplet {S,E,C} and can be viewed as a weighted average of the simplex of S, E and C and is assumed to increase as one moves from having only searc [...] Note that the incremental gross margin is dependent on the consumer’s willingness to pay for the attributevi about which the claim is made and degree of difficulty in ascertaining the presence of the attribute with and without the claim. [...] Accordingly, we can map the relationship between incremental gross margins and the degree of difficulty in verifying claims, as illustrated in Figure 1. The greater the difficulty in verifying a product’s claimed health benefits, the larger the incremental gross margin will need to be in order for the firm to rationally choose to use a claim.