Does Peter Piper Pick a Package of Pepper Inattentively? The Consumer Response to Product Size Changes

Abstract

In the consumer-packaged goods industry, firms can increase unit prices by decreasing package content, a practice known as product downsizing. Since consumers tend to underuse information on product size, they may fail to notice size changes. Downsizing in the black pepper industry provides an opportunity to test whether consumers are inattentive to changes in package content. I build a structural model of consumer preferences that incorporates inattention to size changes and apply it to grocery store scanner data. I find that consumers are insensitive to size decreases, despite their preference for larger package sizes. This differential sensitivity to size suggests that downsizing exploits consumer inattention. With full information, consumers would switch to larger packages that provide greater welfare.

Keywords: Product downsizing, consumer inattention, shrinkflation

JEL Classification: L15, M31, D12, C14