AbstractThis 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. ProÞt-maximizing oligopolists are vertically disintegrated and produce for both markets and the fair trade firm can charge a premium to consumers due to a Òwarm glow effectÓ 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 InfoPaper provided by University of Otago, Department of Economics in its series Working Papers with number 0709.
Length: 37 pages
Date of creation: Jul 2007
Date of revision: Jul 2007
Fair trade; integration; imperfect competition;
Other versions of this item:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
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