The ‘Bottle Bill’ Price Boost

Using NielsenIQ data housed at Chicago Booth’s Kilts Center for Marketing, Keller and Guyt studied how a bottle bill in New York State influenced prices and sales of bottled water. They gathered two years of weekly sales data for 1,500 stores throughout New York and codes for 130 unique products in the bottled water category. The bottle bill, which covers all beverages with package sizes under 1 gallon, was implemented in the middle of the two-year period, allowing them to study sales data before and after the bill was introduced. The researchers contrasted their findings in New York with comparable control markets in other states.

They estimate that the bottle bill alone should have led to a 7 percent increase in bottled water sales. That’s in part because a deposit makes buying plastic water bottles feel more permissible to consumers, the researchers theorize, creating a sense of “moral license.” It could also drive more attention to the category or prompt consumers to think that switching to larger bottle sizes (which can increase consumption but contain less plastic per fluid ounce of water) would be good for the environment.

However, this effect was countered by a price hike on bottled water, the amount of which exceeded the deposit amount. After deposits were put in place, retailers increased prices for every water-bottle size covered under the law. This boost was greatest for the smallest bottle—nearly 30 percent per fluid ounce—and stepped down as bottle size grew. For those bottles not covered by the bill, prices actually fell.

In light of these price moves, overall sales declined by roughly 3 percent. Faced with paying a deposit on every bottle, consumers bought fewer bottles and traded up in size. Sales of larger-volume water bottles increased, but not enough to offset the loss of sales in the three smallest sizes.

The findings allow for a more nuanced understanding of bottle bills’ effects, the researchers write. For retailers, the researchers suggest that the bottle bills, absent price changes, could benefit the bottom line by increasing sales. For policy makers, the study raises implications that are typically overlooked when it comes to introducing bottle bills. “From everything we’ve read, policy makers do not think about downstream complications for retailers,” Keller says. “What we show is that retailers change their behavior and thereby affect purchase patterns of water. This hasn’t been documented before, and it ought to enter into the legislative decisions that are being made.”