Competitive Pricing Reduces Wasteful Counterproductive Behaviors

68 Pages Posted: 24 May 2014 Last revised: 21 Jan 2019

See all articles by Björn Bartling

Björn Bartling

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

Manuel Grieder

ETH Zürich - Department of Humanities, Social and Political Sciences (GESS); Zurich University of Applied Sciences (ZHAW)

Christian Zehnder

University of Lausanne

Multiple version iconThere are 3 versions of this paper

Date Written: August 10, 2017

Abstract

Counterproductive reactions to unfavorable trading prices can cause inefficiencies in economic exchange. This paper studies whether the use of a competitive pricing mechanism reduces such wasteful activities. We report data from a laboratory experiment where a powerful buyer can trade with one of two sellers - an environment that can lead to very low prices for the sellers. We find that low procurement prices trigger significantly less punishment by sellers if the buyer uses a competitive auction rather than his price-setting power to dictate the same terms of trade directly. Our data suggest that the use of competitive pricing mechanisms can mitigate inefficient reactions to unequal distributions of trade surplus.

Keywords: Counterproductive behavior, competitive pricing, markets, auctions, efficiency, inequality

JEL Classification: C91, D31, D63, P10

Suggested Citation

Bartling, Björn and Grieder, Manuel and Zehnder, Christian, Competitive Pricing Reduces Wasteful Counterproductive Behaviors (August 10, 2017). Journal of Public Economics, Vol. 156, 2017. Available at SSRN: https://ssrn.com/abstract=2441135 or http://dx.doi.org/10.2139/ssrn.2441135

Björn Bartling

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

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 )

Chair of Economics
Clausiusstrasse 87
Zurich, 8093
Switzerland

Zurich University of Applied Sciences (ZHAW)

Center for Energy and the Environment
School of Management and Law
Winterthur, CH 8401
Switzerland

Christian Zehnder

University of Lausanne ( email )

Lausanne, Vaud CH-1015
Switzerland

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