Impact of a reduction in the quality of Shine Muscat on the grape variety market using the Armington model

We devised a grape variety model to estimate the impact of lowering the Shine Muscat quality level on the grape market. Shine Muscat has become a popular grape variety in Korea. Accordingly, the area devoted to the harvesting of Shine Muscat has increased dramatically since 2016. Our study examines how a reduction in the quality of Shine Muscat affects other grapes such as Campbell Early, giant peak, and Muscat Bailey A (MBA). The Armington model was used to impose consumer preferences and product differentiation assumptions. We found that a decrease in the consumer preference for Shine Muscat realized by lowering the quality of Shine Muscat largely reduces the price of this variety. Also, the prices of other grape varieties fell via a substitute effect. Moreover, if grape varieties were more differentiated, the reduction in the price of Shine Muscat would be greater, while the decreases in the prices of other grape varieties would be smaller. These results imply that farmers of Shine Muscat must continue with quality management efforts to avoid the negative effect of changing consumer behavior with regard to Shine Muscat against a reduction in its quality. Our model introduces a product differentiation model for the fruit market and helps policymakers and farmers understand the impact of changing market conditions in the fruit market.