Morals in Multi-unit Markets
Tinbergen Institute Discussion Paper 2020-072/I
102 Pages Posted: 7 Dec 2020 Last revised: 24 Jun 2022
Date Written: February 9, 2021
We examine how the erosion of morals in markets depends on the market power of individual traders. Previously studied single-unit markets provide market power to individual traders by limiting the roles of two forces: (i) the replacement logic, whereby immoral trading is justified by the belief that others would trade otherwise; (ii) market selection, by which the least moral trader determines quantities. In an experiment, we compare single-unit to (more common) multi-unit markets which may activate these forces. We find that, in contrast to single-unit markets, multi-unit markets show full erosion of morals. Especially the replacement logic drives this finding. In addition, we find that (i) market experience leads to biased social learning, whereby subjects believe that others are less moral than they actually are; (ii) erosion of morals persists partially after multi-unit markets; (iii) changes in social norms are not driving these results.
Keywords: replacement logic, social responsibility, markets, externalities, competition, charity
JEL Classification: D62, C91, C92
Suggested Citation: Suggested Citation