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Fair Trade

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Author Info
Martin Richardson ()
Frank Staehler ()

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Abstract

This paper deals with the behavior of fair trade organizations in an oligopolistic setting in which the vertically integrated fair trade firm produces a commodity which is a weak substitute for another commodity. Profit-maximizing oligopolists are vertically disintegrated and produce for both markets and the fair trade firm can charge a premium to consumers due to a "warm glow effect" that depends on the wage paid to fair trade producers. We show that trade integration will unambiguously increase the size of the fair trade firm. However, the relative size compared to oligopolists shrinks with integration. The effect of a change in substitutability between the two commodities on markets shares depends on the relative market potential. Furthermore, we show that the warm glow effect does not support an expansion of the volume of fair trade.

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File URL: http://www.ecocomm.anu.edu.au/research/papers/pdf/wp481.pdf
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Publisher Info
Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANUCBE School of Economics Working Papers with number 2007-481.

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Length: 39 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:acb:cbeeco:2007-481

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Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Mark Hayes, 2006. "On the efficiency of fair trade," Review of Social Economy, Taylor and Francis Journals, vol. 64(4), pages 447-468, December. [Downloadable!] (restricted)
  2. Krivonos, Ekaterina, 2004. "The impact of coffee market reforms on producer prices and price transmission," Policy Research Working Paper Series 3358, The World Bank. [Downloadable!]
  3. LeClair, Mark S., 2002. "Fighting the Tide: Alternative Trade Organizations in the Era of Global Free Trade," World Development, Elsevier, vol. 30(6), pages 949-958, June. [Downloadable!] (restricted)
  4. Kreickemeier, Udo & Nelson, Douglas, 2006. "Fair wages, unemployment and technological change in a global economy," Journal of International Economics, Elsevier, vol. 70(2), pages 451-469, December. [Downloadable!] (restricted)
  5. Klaus Conrad, 2005. "Price Competition and Product Differentiation When Consumers Care for the Environment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(1), pages 1-19, 05. [Downloadable!] (restricted)
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