Academic journal article The Journal of Philosophical Economics

Competitive Markets, Collective Action, and the Big Box Retailer Problem

Academic journal article The Journal of Philosophical Economics

Competitive Markets, Collective Action, and the Big Box Retailer Problem

Article excerpt

Abstract: I use a stylized scenario-the Big Box Retailer Problem-to demonstrate that the presence of behavioural interdependence in economic markets may result in deficient outcomes that are both stable and supported by ongoing participant behaviour. I present a theoretical discussion of social dilemmas and use the Big Box Retailer Problem to illustrate that these characteristics-stability and ongoing support-cannot be reliably employed as indicators of outcome efficiency. Equally important is the conclusion that upfront costs and the ongoing necessity of monitoring and encouraging contributory behaviour are not reliable indicators of the relative inefficiency of outcomes associated with collective action. Questions are raised regarding the ethical responsibilities of business educators and the implications of social dilemmas for corporate social responsibility research.

Keywords: corporate social responsibility, behavioural interdependence, economic markets, market failure, social dilemmas

Introduction

The market system is justly described as a social wonder. It is a "global coordinator of cooperative performances of at least 2 billion people. . . . [it is] without peer, in a class by itself. It is the world's broadest and most detailed organizer of social cooperation" (Lindblom, 2001: 41). As Kuttner observes, it is now received wisdom that free and unfettered markets "are both the essence of human liberty, and the most expedient route to prosperity" (Kuttner, 1997: 3). The conviction that uncoordinated economic exchange among individuals will produce collective outcomes that maximize social welfare is not new. As Alan Greenspan observes in his biography, "our ideas about the efficacy of market competition have remained essentially unchanged since the eighteenth-century Enlightenment, when they first emerged, to a remarkable extent, from the mind of one man, Adam Smith" (Greenspan, 2007: 260). When contemporary economists, for example, extol the ability of the market mechanism to deliver productive and allocative efficiency and to maximize social surplus (see, for example, Bator, 1957; Walters, 1993), they echo Smith's observation that the behaviour of individuals often appears to be guided by an "invisible hand" in the promotion of the general welfare (Smith, 1776/1976).

A market system can be defined as a "method of social coordination by mutual adjustment among participants rather than by a central coordinator" (Lindblom, 2001: 23). A society may ask itself, for example, what resources should be devoted to the production of insect repellant, red licorice, or buttons? In many societies these types of questions are answered by simply leaving individuals alone to "truck, barter, and exchange one thing for another" and waiting for responses in the form of efficient resource allocations to emerge from the apparent chaos (Smith, 1776/1976: 8). There is no need for the process to be centrally coordinated or controlled (i.e. there is no need for a central coordinator). As long as supporting customs and institutions, such as liberty, property rights, and a medium of exchange, are in place, it is assumed that market outcomes, if not perfect, are at least "as good as could be expected if somebody took command and figured out what ought to be done and had a way to get everybody to do what he [or she] was supposed to do" (Schelling, 1978: 22).

In certain circumstances, however, faith in the ability of economic markets to produce outcomes that are as good as could be expected if centrally directed is misplaced. Specifically, in exchange situations involving participant interdependence, economic markets may produce inferior or deficient outcomes that are irrational in the sense that there may be other unrealized outcomes in which all participants would be better off(Heckathorn, 1996; Kollock, 1998; Schelling, 1978). This paper contributes to the broad literature on business and society by demonstrating that in these situations attribution errors often lead to incorrect conclusions regarding the relative efficiency of market outcomes. …

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