By: Goodhue, Rachael E.; Rausser, Gordon C.
Goodhue, Rachael E.; Rausser, Gordon C., Value Differentiation, Journal of Agricultural and Resource Economics, Volume 28, Issue 3, December 2003, Pages 375-395
American agriculture is shifting from homogeneous commodities to differentiated products. Value differentiation, the process by which agrifood chain actors isolate, match, and exploit heterogeneity in consumer preferences and product attributes, is examined. Value differentiation is characterized by complementarities across four activities at each stage of the production chain: product characteristic measurement, product characteristic production, coordination between stages, and customer preference detection. Complementarities at the firm level are modeled using supermodularity. The model's predictions are discussed, as are potential testing approaches, and implications are presented for agrifood firms, marketing orders, and returns to research.