Willingness to pay more for fair trade goods

The price of being a do-gooderGiven a choice between own-brand towels and towels produced under fair-trade principals which would you rather buy? And would you be willing to pay a premium price for the privilege of buying fairtrade cotton products? Ray Fishman has a fascinating article in Slate magazine about new research from Harvard economists Michael Hiscox and Nick Smyth.‘Hiscox and Smyth set up their shopping experiment at ABC Carpet and Home, an upscale department store in lower Manhattan. They picked two brands of towels and two brands of candles that had all been produced under fair labor conditions. First, the researchers recorded the weekly sales of the towels and candles without labeling any of them as fair-labor certified, measuring purchasing decisions based solely on taste. After a few weeks, Hiscox and Smyth spent the night at ABC sticking fair-labor labels on one brand of towels and one brand of candles. When the store reopened, sales of the now-labeled fair-labor towels jumped by 11 percent relative to sales of the unlabeled brand. For candles, the effect was even greater—an increase of 26 percent. A few weeks later, Hiscox and Smyth were back in the stockroom, marking up the prices on the labeled towels and candles by 10 percent. Quite remarkably, this increase made people buy even more towels and candles (a 20 percent increase for towels and 30 percent for candles). The authors suggest this may be because the higher prices made the products’ fair-labor claims more credible.’Here is a link to Tim Harford’s mention of the research on his blog - a while ago he had a very funny pop at Costa Coffee for the pricing of their fair trade produce! http://blogs.ft.com/undercover/2007/10/customers-like-.html