Vol. 31, No. 5, September–October 2012, pp. 717–737 ISSN 0732-2399 (print)  ISSN 1526-548X (online) http://dx.doi.org/10.1287/mksc.1110.0692 © 2012 INFORMS Unintended Nutrition Consequences: Firm Responses to the Nutrition Labeling and Education Act Christine Moorman Fuqua School of Business, Duke University, Durham, North Carolina 27708, moorman@duke.edu Rosellina Ferraro Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742, rferraro@rhsmith.umd.edu Joel Huber Fuqua School of Business, Duke University, Durham, North Carolina 27708, joel.huber@duke.edu T his paper investigates how firms responded to standardized nutrition labels on food products required by the Nutrition Labeling and Education Act (NLEA). Using a longitudinal quasi-experimental design, we test our predictions using two large-scale samples that span 30 product categories. Results indicate that the NLEA reduced brand nutritional quality relative to a control group of products not regulated by the NLEA. At the same time, among regulated products, brand taste increased. Although this reduction in nutrition represents an unintended consequence of regulation, there were a set of category, firm, and brand conditions under which the NLEA produced a positive effect on brand nutritional quality. We find that firms were more likely to improve brand nutrition when firm risk or firm power is low. Lower risk occurs when the firm is introducing a new brand rather than changing an existing brand, and weaker power in a category is reflected by lower market share in a category. Furthermore, firms competing in low-health categories (e.g., potato chips) or small-portion categories (e.g., peanut butter) improved nutrition more than firms competing in high-health categories (e.g., bread) or large-portion categories (e.g., frozen dinners). Recommendations for firm strategy and the design of consumer information policy are examined in light of these surprising firm responses. Key words : nutrition labels; nutrition; taste; firm strategy; public policy; quality information History : Received: August 14, 2009; accepted: October 26, 2011; Eric Bradlow served as the editor-in-chief and Scott Neslin served as associate editor for this article. Published online in Articles in Advance February 16, 2012; revised July 12, 2012. 1. Introduction The Nutrition Labeling and Education Act (NLEA) sought to eliminate untruthful nutrition claims and to improve consumers’ abilities to access and process nutrition information at the point of sale. It required manufacturers to provide a “Nutrition Facts” label displaying standardized information on all nutrients, recommended daily values, and an ingredient list on food products by May 1994 (Federal Register 1993). Health claims making diet–disease links or using terms such as “light” were also regulated for truthful content. Before the act, nutrition labels were required only when manufacturers made an explicit nutrition claim in advertising or on the package (e.g., low sodium) or when the product was fortified with additional nutri- ents (Federal Register 1973). 1 As a result, prior to the 1 The required nutrition information was serving size, number of servings per container, calories, carbohydrates, protein, and fat per NLEA, most food products did not disclose nutrition information, making comparisons within and across categories difficult for consumers. Furthermore, even those products providing nutrition information did not list recommended daily values for important nutrients such as fat, sodium, and cholesterol. Theory suggests that the NLEA’s required labels should promote consumer search and, in turn, stim- ulate competition to improve brand nutrition lev- els (e.g., Salop 1976, Stigler 1961). As noted by the Federal Trade Commission (1979, p. 14), “Informa- tion remedies have the direct benefit of improving the free flow of truthful commercial information. Informed consumer decisions then give sellers an eco- nomic incentive to improve the quality and selec- tion of their marketplace offerings.” This logic may serving, as well as percent Recommended Daily Allowances for protein, vitamins A and C, thiamine, riboflavin, niacin, calcium, and iron. In 1985, the rule was expanded to include sodium per serving. 717