Competition in fairness and the consequences of mainstreaming Fairtrade
University of Birmingham, Birmingham
Number of pages
European Trade Study Group, 12 september 2013
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SubjectDistributional Conflicts in a Globalizing World: Consequences for State-Market-Civil Society Arrangements
The increased availability and sales of Fairtrade products has resulted in an increased number of products with fairness content in the market place. While mainstreaming of Fairtrade implies that overall fairness and wealth transfers to small producers goes up, it may also entail the possibility of dilution of Fairtrade principles resulting in less welfare transfers. This paper uses a Hotelling framework of competition to analyze firm behavior with respect to the entry of products with fairness content. We analyze how an incumbent supplier reacts on a Fairtrade entrant and how a Fairtrade supplier reacts on a conventional entrant that starts offering a product with fairness content. By doing so we are able to calculate the firms’ optimal fairness locations and the total amount of fairness generated. The results can be used by managers and policy makers in determining the optimal strategy when it comes to the amount of fairness content in the market and/or the implementation of fairtrade products within development policies. We find that firms’ optimal locations are mainly determined by the transfers to smallholders and the distance of consumers towards the location of the firm.
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