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Fair Trade

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  • Martin Richardson

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  • 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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Bibliographic Info

Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics 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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References

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  1. Eriksson, Clas, 2004. "Can green consumerism replace environmental regulation?--a differentiated-products example," Resource and Energy Economics, Elsevier, Elsevier, vol. 26(3), pages 281-293, September.
  2. Maseland, Robbert & Vaal, Albert de, 2001. "How fair is fair trade?," Research Report 01C48, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  3. Klaus Conrad, 2005. "Price Competition and Product Differentiation When Consumers Care for the Environment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 31(1), pages 1-19, 05.
  4. Krivonos, Ekaterina, 2005. "The impact of coffee market reforms on producer prices and price transmission," 2005 Annual meeting, July 24-27, Providence, RI, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 19315, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. Kreickemeier, Udo & Nelson, Douglas, 2006. "Fair wages, unemployment and technological change in a global economy," Journal of International Economics, Elsevier, Elsevier, vol. 70(2), pages 451-469, December.
  6. Fabrizio Adriani & Leonardo Becchetti, 2004. "Fair Trade: A 'Third Generation' Welfare Mechanism to Make Globalisation Sustainable," CEIS Research Paper 62, Tor Vergata University, CEIS.
  7. Mark Hayes, 2006. "On the efficiency of fair trade," Review of Social Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 64(4), pages 447-468.
  8. LeClair, Mark S., 2002. "Fighting the Tide: Alternative Trade Organizations in the Era of Global Free Trade," World Development, Elsevier, Elsevier, vol. 30(6), pages 949-958, June.
  9. Philip Booth & Linda Whetstone, 2007. "Half A Cheer For Fair Trade," Economic Affairs, Wiley Blackwell, Wiley Blackwell, vol. 27(2), pages 29-36, 06.
  10. Mads Greaker, 2006. "Eco-labels, Trade and Protectionism," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 33(1), pages 1-37, 01.
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Cited by:
  1. Ruben, Ruerd & Fort, Ricardo, 2012. "The Impact of Fair Trade Certification for Coffee Farmers in Peru," World Development, Elsevier, Elsevier, vol. 40(3), pages 570-582.
  2. Dammert, Ana C. & Mohan, Sarah, 2014. "A Survey of the Economics of Fair Trade," IZA Discussion Papers 8167, Institute for the Study of Labor (IZA).

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