Life can’t be too sweet: the effects of sugar-sweetened beverage labelling on the government’s health battle

Singapore’s recent mandatory labelling regulations for sugar-sweetened beverages (SSBs) aim to guide consumer choices towards healthier options, which mandates labels on SSBs regarded as less healthy and encourages voluntary labelling for healthier SSBs. We focus on market competition between two SSB firms under different labelling schemes. Surprisingly, we find that mandatory labelling increases the consumption of less-healthy SSBs while reducing healthier SSBs consumption when the health risk is low. This counterintuitive result is attributed to the revelation of the lower-than-expected health risk, triggering a heterogeneity-reducing effect that heightens competition and price sensitivity. The lower retail price of less-healthy SSBs increases the demand. The heterogeneity-reducing effect also enables voluntary labelling of healthier SSBs to alleviate the adverse impact of mandatory labelling on consumer surplus and social welfare. Additionally, the imposition of SSB taxes effectively reduces consumption but challenges consumer surplus and compromises the efficacy of mandatory labelling.