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JWE-Articles
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Journal of Wine Economics Volume 12 | 2017 | No. 4 | Selected Proceedings
»
Fairtrade Wine Price Dispersion in the United Kingdom

Fairtrade Wine Price Dispersion in the United Kingdom

Britta Niklas, Karl Storchmann & Nick Vink
JEL Clasification: L31, L81, Q11
Pages: 446-456
Abstract

This paper analyzes wine price dispersion in the United Kingdom. In particular, we are inter- ested 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 sig- nificant 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.

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E-Mail: karl.storchmann@nyu.edu

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