Animal welfare activists have succeeded in persuading egg purchasers to purchase only eggs that are produced according to new animal welfare guidelines. This agreement will increase the cost of producing eggs that are sold in the shell. To date, the guidelines do not apply to eggs that are broken and further processed. This agreement creates a bifurcated market: high-cost eggs in the shell and low-cost eggs that are processed. We conduct a qualitative analysis of the effects on consumers and producers from creation of this new market structure. Restricting the movement of low-cost eggs into the in-shell market in periods of peak demand will increase the price of in-shell eggs and will decrease the price of eggs destined for processing in these periods. Winners from adopting this restriction are those producers who produce only for the in-shell market. Losers from this restriction are producers who only produce for the processing market. We are currently undertaking a companion study that will provide estimates of the magnitude of the gains and losses from this new market structure.
Available at: http://works.bepress.com/john-miranowski/4/