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Fair Trade


  • Martin Richardson

    () (School of Economics, Australian National University)

  • Frank Staehler

    () (Department of Economics, University of Otago)


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. 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.

Suggested Citation

  • Martin Richardson & Frank Staehler, 2007. "Fair Trade," Working Papers 0709, University of Otago, Department of Economics, revised Jul 2007.
  • Handle: RePEc:otg:wpaper:0709

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    References listed on IDEAS

    1. Krivonos, Ekaterina, 2004. "The impact of coffee market reforms on producer prices and price transmission," Policy Research Working Paper Series 3358, The World Bank.
    2. Udo Kreickemeier & Douglas Nelson, 2017. "Fair Wages, Unemployment, and Technological Change in a Global Economy," World Scientific Book Chapters,in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 8, pages 205-235 World Scientific Publishing Co. Pte. Ltd..
    3. Mark Hayes, 2006. "On the efficiency of fair trade," Review of Social Economy, Taylor & Francis Journals, vol. 64(4), pages 447-468.
    4. Eriksson, Clas, 2004. "Can green consumerism replace environmental regulation?--a differentiated-products example," Resource and Energy Economics, Elsevier, vol. 26(3), pages 281-293, September.
    5. Klaus Conrad, 2005. "Price Competition and Product Differentiation When Consumers Care for the Environment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 31(1), pages 1-19, May.
    6. Philip Booth & Linda Whetstone, 2007. "Half A Cheer For Fair Trade," Economic Affairs, Wiley Blackwell, vol. 27(2), pages 29-36, June.
    7. 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.
    8. Fabrizio Adriani & Leonardo Becchetti, 2004. "Fair Trade: A 'Third Generation' Welfare Mechanism to Make Globalisation Sustainable," CEIS Research Paper 62, Tor Vergata University, CEIS.
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    Cited by:

    1. Pio Baake & Helene Naegele, 2017. "Competition between For-Profit and Industry Labels: The Case of Social Labels in the Coffee Market," Discussion Papers of DIW Berlin 1686, DIW Berlin, German Institute for Economic Research.
    2. Ruben, Ruerd & Fort, Ricardo, 2012. "The Impact of Fair Trade Certification for Coffee Farmers in Peru," World Development, Elsevier, vol. 40(3), pages 570-582.
    3. Ana C. Dammert & Sarah Mohan, 2015. "A Survey Of The Economics Of Fair Trade," Journal of Economic Surveys, Wiley Blackwell, vol. 29(5), pages 855-868, December.

    More about this item


    Fair trade; integration; imperfect competition;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation


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