Fair Trade

38 Pages Posted: 7 Aug 2007

See all articles by Martin Richardson

Martin Richardson

Australian National University (ANU) - Faculty of Economics & Commerce

Frank Stähler

University of Tuebingen - Department of Economics; University of Adelaide - School of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2007

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.

Keywords: Fair trade, integration, imperfect competition

JEL Classification: F12

Suggested Citation

Richardson, Martin and Stähler, Frank, Fair Trade (June 2007). Available at SSRN: https://ssrn.com/abstract=1001146 or http://dx.doi.org/10.2139/ssrn.1001146

Martin Richardson (Contact Author)

Australian National University (ANU) - Faculty of Economics & Commerce ( email )

Canberra, Australian Capital Territory 2601
Australia

Frank Stähler

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

HOME PAGE: http://www.frank-staehler.de

University of Adelaide - School of Economics ( email )

Adelaide SA, 5005
Australia

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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