Job Market Paper

Does Shrinkflation Harm Consumers?

— Universal Welfare Gains and Variety Loss in the Ice Cream Market —

Shrinkflation, the practice of reducing package size at a constant price, is widely viewed as a deceptive firm strategy. This paper challenges such consensus by reframing downsizing as the introduction of a new product variety and provides the empirical estimates of its heterogeneous welfare effects across the income distribution. Using a random coefficient demand model estimated for prepackaged ice cream, I analyze household preferences for price-size trade-offs. Counterfactual simulations reveal that all income quartiles universally prefer shrinkflation to an equivalent price increase. This welfare gain (1.09% of retail price) is non-monotonic, with the lowest-income quartiles benefiting most. When the choice set is expanded to include both inflated and shrinkflated products, all groups experience further welfare gains (0.54% of retail price). The findings indicate that the welfare harm of shrinkflation stems not from the smaller package itself, but from the associated reduction in product variety. This suggests policies should focus on preserving choice rather than just information disclosure.