Hostname: page-component-848d4c4894-ttngx Total loading time: 0 Render date: 2024-04-30T17:54:13.901Z Has data issue: false hasContentIssue false
  • English
  • Français

Fairtrade Wine Price Dispersion in the United Kingdom*

Published online by Cambridge University Press:  11 January 2018

Britta Niklas ,
Karl Storchmann  and
Nick Vink
Britta Niklas*
Affiliation:
Institute of Development Research and Development Policy, Ruhr-University Bochum, Universitätsstr.105, 44789 Bochum, Germany
Karl Storchmann
Affiliation:
Economics Department, New York University, 19 W. 4th St., New York, NY 10012; e-mail: karl.storchmann@nyu.edu.
Nick Vink
Affiliation:
Department of Agricultural Economics, Stellenbosch University, Private Bag X1, Matieland, 7602, South Africa; e-mail: nv@sun.ac.za.
*
e-mail: britta.niklas@rub.de (corresponding author).
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper analyzes wine price dispersion in the United Kingdom. In particular, we are interested in examining whether Fairtrade wines are different from non-Fairtrade wines. Because Fairtrade wines serve an additional social purpose, one may think that consumers search less aggressively for the outlet with the lowest price, thus allowing for a larger price dispersion than for regular wines. We draw on data for about seven thousand wines from South Africa, Fairtrade and non-Fairtrade, sold in the United Kingdom between 2007 and 2012. In a first step, we run a hedonic regression model explaining the wine prices using Ordinary Least Squares (OLS) and Two-Stage Least Squares (2SLS) Instrumental Variable (IV) approaches. In the next step, we regress the squared residuals from the first step on a Fairtrade 0-1 dummy-variable. When using the squared residuals from the OLS model, we find that Fairtrade is a negative determinant of price dispersion. Therefore, Fairtrade wines exhibit a significant lower price dispersion than the comparison group. When using the squared residuals from the IV model, we find mixed results and suspect the presence of a substantial bias due to weak instruments. Finally, in order to avoid IV pitfalls, we ran Fairtrade and Non-Fairtrade wines in separate equations. We find support for the OLS results, i.e., Fairtrade wines appear to exhibit lower price dispersion than their non-Fairtrade counterparts. Whether this is due to consumer search is a priori unclear. (JEL Classifications: L31, L81, Q11)

Keywords

Fairtradeprice dispersionwine
Type
Articles
Information
Journal of Wine Economics , Volume 12 , Issue 4 , November 2017 , pp. 446 - 456
Copyright
Copyright © American Association of Wine Economists 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

We are grateful to an anonymous reviewer as well as to participants at the American Association of Wine Economists (AAWE) conferences in Walla Walla, Washington, in 2014, and in Mendoza, Argentina, in 2015.

References

Andreoni, J. (1990). Impure altruism and donations to public goods: A theory of warm-glow giving. Economic Journal, 100(401), 464–477.CrossRefGoogle Scholar
Becker, G. S. (1974). A theory of social interactions. Journal of Political Economy, 82(6), 1063–1093.Google Scholar
Dragusanu, R., Giovannucci, D., and Nunn, N. (2014). The economics of fair trade. Journal of Economic Perspectives, 28(3), 217–236.Google Scholar
Fairtrade Foundation. (2012). History. Available at http://www.fairtrade.org.uk/what_is_fairtrade/history.aspx (accessed on July 9, 2012).Google Scholar
Fairtrade Foundation UK. (2017). Wine farmers and workers. Available at http://www.fairtrade.org.uk/Farmers-and-Workers/Wine (accessed on November 12, 2017).Google Scholar
Fairtrade Label South Africa. (2012). Fairtrade wine products. Available at http://www.fairtradelabel.org.za/product/wine.1.html (accessed on July 9, 2012).Google Scholar
FLO-CERT. (2012). Website. Available at http://www.flo-cert.net/flo-cert/28.html (accessed on July 9, 2012).Google Scholar
Granville, B., and Telford, S. (2013). Empirical evidence from South Africa. In Granville, B., and Dine, J. (eds.), The Processes and Practices of Fair Trade: Trust, Ethics, and Governance, 286–340. New York: Routledge.Google Scholar
Jaeger, D. A., and Storchmann, K. (2011). Wine retail price dispersion in the United States: Searching for expensive wines? American Economic Review, Papers and Proceedings, 101(3), 136–141.Google Scholar
Olson, M. (1965). The Logic of Collective Action. Cambridge, Mass: Harvard University Press.Google Scholar
Pratt, J. W., Wise, D. A., and Zeckhauser, R. (1979). Price differences in almost competitive markets. Quarterly Journal of Economics, 93(2), 189–211.CrossRefGoogle Scholar
Sorensen, A. T. (2000). Equilibrium price dispersion in retail markets for prescription drugs. Journal of Political Economy, 108(4), 833–850.Google Scholar
Wine Searcher. (2017). Wine scores. Available at https://www.wine-searcher.com/wine-scores.lml (accessed on November 10, 2017).Google Scholar