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Abstract

This article develops a framework to analyze voluntary marketing initiatives aimed at reducing children’s exposure to high-calorie packaged foods. Our empirical investigation focuses on children’s ready-to-eat cereal; we begin by estimating a limited awareness differentiated product demand model using a panel of consumer purchase and television advertising data. We use the demand estimates in a dynamic model of pricing and advertising competition in which firms have the option of participating in an initiative that defines nutritional standards for products targeted toward children. Participation requires that firms either comply with nutritional standards by reformulating their product or stop advertising. Results from our analysis indicate that leading firms should choose participation and reformulation as the strictly dominant strategy as long as prospective product reformulation costs do not exceed the marginal profitability of reformulation.

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