Abstract

http://ssrn.com/abstract=2441135
 
 

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


Abstract:     
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


Open PDF in Browser Download This Paper

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
Switzerland
CESifo (Center for Economic Studies and Ifo Institute) ( email )
Poschinger Str. 5
Munich, DE-81679
Germany

Manuel Grieder (Contact Author)
ETH Zürich - Department of Humanities, Social and Political Sciences (GESS) ( email )
Clausiusstrasse 87
CLD C11
Zurich, 8093
Switzerland
Christian Zehnder
University of Lausanne ( email )
Lausanne, Vaud CH-1015
Switzerland
Feedback to SSRN


Paper statistics
Abstract Views: 1,961
Downloads: 298
Download Rank: 59,950
References:  39
People who downloaded this paper also downloaded:
1. Do Markets Erode Social Responsibility?
By Björn Bartling, Roberto Weber, ...

© 2016 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollobot1 in 0.219 seconds