Let the Market Decide: An Experimental Study of Competition and Fairness

51 Pages Posted: 3 Jul 2014

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: June 11, 2014

Abstract

Is competition perceived as a fair procedure? We report data from laboratory experiments where a powerful buyer can trade with one of several sellers. Sellers who feel shortchanged can engage in counterproductive behavior to punish the buyer. We find that the same unfavorable terms of trade trigger significantly less punishment if the buyer uses a competitive auction to determine the terms of trade than if she uses her authority to dictate the same terms directly. Our results inform the debate on the fairness of market outcomes by showing that the use of a competitive procedure can, by itself, affect how people judge unequal distributive outcomes.

Keywords: competition, authority, markets, fairness, responsibility, procedures

JEL Classification: C910, D030, D630

Suggested Citation

Bartling, Björn and Grieder, Manuel and Zehnder, Christian, Let the Market Decide: An Experimental Study of Competition and Fairness (June 11, 2014). CESifo Working Paper Series No. 4831. Available at SSRN: https://ssrn.com/abstract=2461654

Björn Bartling (Contact Author)

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

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 )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

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