Paper #779

Title:

Ethical differentiation and market behavior: An experimental approach

Authors:

Julian Rode, Robin Hogarth and Marc Le Menestrel

Date:

October 2004 (Revised: May 2006)

Abstract:

Does ethical differentiation of products affect market behavior? We examined this issue in triopolistic experimental markets where producers set prices. One producer’s costs were higher than the others. In two treatments, the additional costs were attributed to compliance with ethical guidelines. In the third, no justification was provided. Many participants playing the role of consumers reduced their experimental gains by purchasing the ethically differentiated product at a higher price – whether or not they knew the amount of extra cost. Individual differences were important (students of business/economics paid smaller premia than others). Finally, we speculate about the observed “demand function” for ethics and emphasize the use of experimental methodology to complement empirical studies designed to assess the potential market for ethically differentiated products.

Keywords:

Fair trade, ethical premia, price competition, contextual effects, Leex

JEL codes:

A13, B41, D43, D46

Area of Research:

Behavioral and Experimental Economics

Published in:

Journal of Economic Behavior and Organization, 66, 265-280, 2008

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