The ‘Made-in-USA’ label boosts prices, but just a little

Brett Nelson | Jun 22, 2020

Sections Marketing

Goods imported to the United States are required to be marked with a country of origin—“Made in China,” for example. Most US companies are not required to disclose their products’ country of origin, but a variety of consumer-goods enterprises do so anyway, advertising their products as “Made in USA.”

Some consumers will pay more for products advertising themselves as American made, suggests research conducted by Chicago Booth PhD candidate Xinyao Kong and Booth’s Anita Rao. However, the amount they’re willing to pay is not enough to get companies to invest in domestic production—though it is enough to inspire some deceptive marketing, they find.

Buying American is a symbol of personal identity and has been a focus over the years for US policy makers. The Obama administration approved a Buy American provision in its 2009 stimulus package. More recently, President Donald Trump in 2017 signed the Buy American and Hire American Executive Order, one of two executive orders intended to push federal agencies into buying American-made industrial materials for infrastructure projects such as bridges, roads, and sewers. 

But how much is that “Made in USA” label worth? To calculate the made-in-America premium, Kong and Rao took two approaches. In the first, they looked at what happened to sales of four products that were made to drop the label from their marketing. The Federal Trade Commission requires that products bearing the label be “all or virtually all” manufactured in the US, and, holding all other variables constant, the researchers analyzed what happened after the four products were forced to drop the false claim. After the companies eliminated the label, weekly sales fell for three of the four brands, the researchers find. Sales fell for Gorilla Glue by 2 percent, all Loctite glue products by 6 percent, and Tramontina cookware by nearly 20 percent. Sales of the fourth brand, Gorilla Tape, experienced a trend decline after the FTC ruled that it had addressed its misleading marketing.

Kong and Rao then ran a field experiment, holding a series of eBay auctions in which they sold about 900 US-made screen protectors for phones and watches. Screen protectors were in high demand on eBay, went for relatively cheap (enabling a large number of transactions), and often sold as generic, unbranded items. The researchers varied only whether the protectors were sold with or without the “Made in USA” claim.

The mean transaction price in the experiment was 26 cents, and screen protectors advertised with the “Made in USA” label sold for 7 cents more, equivalent to a 28 percent price premium, albeit on a low-cost, commodity item. The results could be different for an item in a different category, the researchers caution, as well as for items sold in a brick-and-mortar retail store. If the experiment had involved laptops, consumers might have still paid more for a US-made laptop, but it’s unlikely the premium would have been 28 percent, Rao says.

Because auction transaction prices only reflect the market prices offered by people who won the auction, the researchers also used a statistical method to account for shoppers who viewed the listing and chose not to bid, or those who bid but lost. Doing so revealed that while a small portion of people don’t want to buy a USA-made product, the rest will pay 11 cents more, on average, than they would for a product without the claim. 

A follow-up survey reveals that Republicans and people who identified as politically conservative were more likely to bid on the USA-labeled product, and they reported doing so to support US companies and workers. 

However, the findings indicate that while companies already manufacturing in the US might want to use the label to capture the made-in-America premium, the premium isn’t likely to justify the investments needed to relocate overseas factories to domestic sites. 

And it might inspire unscrupulous marketers, Kong and Rao warn. Their research offers a theoretical benchmark for calculating civil penalties for deceptive marketers. “We believe this finding further underscores the role of the regulator in enforcing truthful representation of the country-of-origin claim,” they write.