References (39)



Does Competition Justify Inequality?

Björn Bartling

University of Zurich - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Manuel Grieder

ETH Zürich - Department of Humanities, Social and Political Sciences (GESS)

Christian Zehnder

University of Lausanne

June 22, 2016

Do competitive mechanisms provide justification for economic inequality? Perceptions of fairness violations can have severe economic consequences, as they may cause counterproductive behaviors such as rulebook slowdowns or quality shading. To analyze fairness perceptions associated with competitive mechanisms, we run laboratory experiments where a single powerful buyer can trade with one of two sellers -- an environment that can lead to pronounced inequality among the interacting parties. Once the terms of trade are determined, sellers can engage in counterproductive behaviors. We robustly find that low procurement prices, which allocate most of the surplus from trade to the buyer, trigger significantly less counterproductive behavior if the buyer uses a competitive auction to determine the terms of trade than if he uses his price setting power to dictate the same terms directly. Our data suggest that competitive mechanisms, in addition to their capability to produce efficient allocations, can reduce conflict and inefficient reactions by increasing justification for economic inequality.

Number of Pages in PDF File: 59

Keywords: Fairness, competition, markets, efficiency, inequality

JEL Classification: C91, D31, D63, P10

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Date posted: May 24, 2014 ; Last revised: June 23, 2016

Suggested Citation

Bartling, Björn and Grieder, Manuel and Zehnder, Christian, Does Competition Justify Inequality? (June 22, 2016). Available at SSRN: http://ssrn.com/abstract=2441135 or http://dx.doi.org/10.2139/ssrn.2441135

Contact Information

Björn Bartling
University of Zurich - Department of Economics ( email )
Zuerich, 8006
CESifo (Center for Economic Studies and Ifo Institute) ( email )
Poschinger Str. 5
Munich, DE-81679

Manuel Grieder (Contact Author)
ETH Zürich - Department of Humanities, Social and Political Sciences (GESS) ( email )
Clausiusstrasse 87
Zurich, 8093
Christian Zehnder
University of Lausanne ( email )
Lausanne, Vaud CH-1015
Feedback to SSRN

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