Reputation and State Product Logos: The Case of Washington Apples

1
Reputation and State Product Logos The Case of
Washington Apples

• by
• Kwamena K. Quagrainie
• Jill J. McCluskey
• Maria L. Loureiro

2
Industry Concerns

• Declining producer price of apples
• Declining eating quality of red delicious
• Harmonizing eating quality grading standards
• Collective reputation and free riding
• Sustaining reputation
• Effectiveness of Washington Apple logo

3
Issues Arising

• What do state product logos represent?
• How do we measure reputation or image?
• Reputation - does it change over time?
• Any price premium for reputation?
• What factors enhance reputation?
• Can consumer perceptions be changed with
  labeling?
• Modeling psychological issues in economics

4
Objectives

• Directly estimate or predict reputation
• Examine dynamics of reputation
• Assess effect of logo on reputation
• Assess factors that enhance (or worsen)
  reputation
• Verify relationship between reputation and price
  premium

5
Methodology

• Psychometric Analysis MIMIC (multiple-indicator
  multiple-cause) modeling
• Quantify latent (unobserved) variable
  reputation using observable variables
• Application of FIML (Full Information Maximum
  Likelihood) procedure
• 3-step estimation process

6
The State-Space Formulation
 
 
7
Relevant Variables

• Indicator Variables (y)
• Relative retail price of Washington apples to
  Non-Washington apples (Red delicious, Golden
  delicious, Granny smith, Fuji, Gala)
• Cause Variables (Rt-1, X)
• Previous reputation, season, region of sale,
  variety, presence of logo

8
Regional Demarcation
9
Estimation Procedure (1)
10
Estimation Procedure (2)
11
Results from Log likelihood function
12
Estimates of covariance matrix (O)
Ho ? ??' ? LR statistic 1.137
chi-squared
13
Estimates from Behavioral Equation Rt(Rt-1, X)
14
Estimates from Hedonic Price Model yt(yt-1, X)
15
Results/Conclusions

• Price deviations are good indicators of
  reputation
• Reputation could provide price premium
• Reputation evolves over time
• (Ho ?11 ? F-statistic 406.4)
• Industry benefits from accrued or past reputation
• Fuji variety logo have dominant positive
  effects on reputation

16
Results/Conclusions

• Washington apples have a positive image /
  reputation
• Red delicious appears to worsen the reputation
  of Washington apples
• Reputation appears to be declining, caused by
  factors other than Red delicious
• Possibility of free-riding on collective
  reputation

17
Recommendations

• Determination of what constitute eating
  qualities
• Establishment of minimum eating quality
  standards
• Logo should reflect more than just origin
• Quality standards to include both eating
  qualities grading standards

18
Comparison of Reputation Average Relative Price