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Ethical differentiation and market behavior: An experimental approach

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Abstract

Does ethical differentiation of products affect market behavior? We examined this issue in triopolistic experimental markets where producers set prices. One producer’s costs were higher than the others. In two treatments, the additional costs were attributed to compliance with ethical guidelines. In the third, no justification was provided. Many participants playing the role of consumers reduced their experimental gains by purchasing the ethically differentiated product at a higher price – whether or not they knew the amount of extra cost. Individual differences were important (students of business/economics paid smaller premia than others). Finally, we speculate about the observed “demand function” for ethics and emphasize the use of experimental methodology to complement empirical studies designed to assess the potential market for ethically differentiated products.

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  • Julian Rode & Robin Hogarth & Marc Le Menestrel, 2004. "Ethical differentiation and market behavior: An experimental approach," Economics Working Papers 779, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2006.
    • Handle: RePEc:upf:upfgen:779
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    More about this item

    Keywords

    Fair trade; ethical premia; price competition; contextual effects; Leex;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory

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