15 Pages Posted: 17 Dec 2014
Date Written: December 2014
This paper analyses a setting in which a vertically integrated fair‐trade firm competes against vertically disintegrated, profit-maximising oligopolists. Consumers of the fair‐trade product derive a ‘warm glow’ that depends on the wage paid to fair-trade producers; the firm returns all surplus to its farmers. Trade integration will unambiguously increase the size of the fair‐trade firm, but the relative size compared to oligopolists may shrink. Furthermore, we show that the 'warm glow' effect may support a marginal expansion of the volume of fair trade, but for rather perverse reasons.
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