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Trent SmithJust how much are consumers being influenced by large industry bodies?

A lot more than we realise according to Dr Trent Smith, Senior Lecturer in Economics at the University of Otago.

Economists have long known about the creeping influence of money on the regulatory process.  The economic theory of regulatory capture describes how large industry bodies world-wide effectively “capture” regulation, by influencing supposedly impartial government regulatory agencies to advance the interests of a specific group rather than acting in the public interest.

This influence is not confined solely to regulations; the same logic can be applied to any powerful institution with the power to alter public perceptions in ways that improve private profits.  This might be achieved by disseminating favourable messages via media, or by funding industry-friendly scientific research.

This more all-encompassing theory has been dubbed “deep capture.”  It focuses on monopolistic organisations that control the facts available to consumers, by disseminating biased information or disinformation, therefore preventing people from making informed decisions. Individuals may not even be aware that exterior forces have influenced their actions.

Information constraints have economic consequences; they can influence the consumer's purchasing decision-making, bias the laws of supply and demand to the producer's benefit, and drive profits up.  The market equilibrium is altered, markets are not truly efficient, and product quality can suffer.

By applying this framework on specific industry bodies, economists are now starting to measure such power on institution's profits, giving valuable guidance to policy makers, and developers of quality verification systems.

What we have been doing

Dr Smith and Professor Attila Tasnádi, from Corvinus University of Budapest, proposed the first formal economic theory of deep capture in 2014.  They suggest that deep capture is possible when consumers care about product quality, but are unable to fully observe quality before purchasing.

One example is the food industry.  Dr Smith and Professor Tasnádi illustrate the phenomenon through the food industry response to the obesity epidemic. They argue the global fast food industry is influencing the understanding of the causes of obesity and of food's true nutritional value.

The fast foods and snack foods domination in the American market has largely coincided with the obesity epidemic there. It therefore seemed reasonable to ask whether commercial interests have a role in public perceptions of nutritional quality in the marketplace, one of the many candidate causes of obesity.

This study demonstrates that food businesses expend costly effort to influence consumer beliefs, which make it possible for foods low in nutritional quality to dominate the market. In other words we have been presented imperfect information about the true nutritional value of the food we eat, and the industry makes it difficult to search for quality information to base eating choices on.

The researchers also argue that each of the three well-worn industry messages - count calories, exercise more, and let consumers choose - can be deeply misleading, and that interest groups have interpreted information in an overly simplistic, biased and unscientific manner.

Dr Smith's work in this area means for the first time there is a more direct framework to help policy makers understand the underlying incentives and parameters at work, which will ultimately provide greater clarity for the obesity debate.

“The Economics of Information, Deep Capture, and the Obesity Debate,” (with A. Tasnádi), 2014 American Journal of Agricultural Economics, 96(2), 533–541.

Contact Details

Dr Trent Smith
Department of Economics Otago Business School
Tel. 03 479 4596
Department of Economics Staff Profile

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