The changing role of consumers and suppliers in a food safety event: the 2006 foodborne illness outbreak linked to spinach

This article provides a means for testing whether buyers or sellers are responsible for a drop in sales following a market shock. We show that suppliers’ responses dominated the market reaction to the 2006 US Food and Drug Administration warning to avoid fresh spinach contaminated with potentially deadly bacteria Escherichia coli O157:H7. A modified Durbin-Wu-Hausman test for temporary price endogeneity is developed and used in a leafy green vegetable demand model. Test results indicate the price of bagged spinach was exogenous before the announcement but endogenous for approximately 12 weeks afterward. We show these results are consistent with the notion that suppliers temporarily limited the availability of spinach to consumers. Instead of consumers choosing the quantity purchased given exogenous prices, it was suppliers who limited the quantity marketed and consumers’ choices established the market price.