Morals in Multi-unit Markets

Abstract

We examine how the erosion of morals, norms and norm compliance in markets depend on the market power of individual traders. Previously studied markets allow traders to trade at most one unit and provide market power to individual traders by de-activating 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 multi-unit markets result in partial norm erosion; moreover, in contrast to single-unit markets, they lead to a full erosion of morals and norm compliance. The replacement logic is the main mechanism driving this finding.

Keywords: replacement logic, social responsibility, markets, externalities, competition, charity

JEL Classification: D62, C91, C92