Information, Advertising and Health Choices: A Study of the Cereal Market

This article examines the effects of information on consumer and producer behavior by focusing on the ready-to-eat cereal market during a period in which information developed about the health benefits of fiber cereal consumption. Although cereal producers were initially prohibited from advertising these health benefits, the regulatory ban against producer advertising was lifted during the period we study. Our results indicate that consumers changed their behavior once informed of the health benefits and that advertising was an important source of information once the ban was lifted. Producer health claims about fiber also led to significant product innovation and did not cause adverse effects in other health dimensions of cereal consumption. Government and general information sources had limited impact on fiber cereal choices in the years prior to the advertising. Analysis of individual food consumption data indicates that theories of information acquisition are important in explaining who responds most quickly to new information; household and individual characteristics that reflect costs of acquiring information, ability to process information, and valuation of health are all important determinants of fiber cereal choices. Moreover, the evidence suggests that advertising reduced the differences across consumers by lowering the costs of acquiring information for broad segments of the population. In contrast, the information processing advantages due to education were not reduced by advertising.