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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).
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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 

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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.

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