Relevance of potential supply structures in frameworks involving consumer's private information: the case of fair trade

Florence Lachet-Touya (1)

1 CATT - Centre d'Analyse Théorique et de Traitement des données économiques

Fair trade actors have to deal with a significant degree of information asymmetry as regard their willingness-to-buy such goods and their willingness-to-pay for them. Many debates and controversies have paved the way for the development of fair trade, in particular concerning the distribution channel that had to be preferred. We use a common agency game framework to analyze the changes in the price level according various schemes of upstream-downstream organization and relationships. Both the private information parameter and the nature of the relationship between suppliers are the key variables that determine the price paid by consumers. If the choice of a dedicated structure does not appear relevant when costs or the number of competing producers are high, the framework of a sequential contracting process always results sub-optimal. What really matters is the nature of the firms involved and the convergence of interests. An equilibrium close to the socially optimal issue may emerge.

Keywords: Fair trade; Informational asymmetry; Common Agency; Nonlinear prices; Retail; Cooperatives; Cooperation; Pro-social preferences

Domains: Economics and Finance; Quantitative Finance [q-fin]

Florence Lachet-Touya. Relevance of potential supply structures in frameworks involving consumer's private information: the case of fair trade. 2019. ⟨hal-02937902⟩