Market Competition and Efficient Cooperation

We experimentally study the causal effects of different types of market experience on the efficiency levels attained in a subsequent social dilemma. Our motivation stems from the existence of contrasting views on the potential spillover effects of participation in markets on non-market activities requiring cooperation. In our setup, market interaction takes place in a competitive market involving a short and a long side. Our focus is on the comparison of the efficiency levels attained in a subsequent social dilemma by pairs of individuals who were on the short side of the market, market-winners, with that of individuals who were on the long side, market-losers. We study both the cases where interaction in the social dilemma is with others from the same market, Market-Partners, and where it is with others from another market, Market-Strangers. We compare the efficiency of cooperation with and without market experience controlling for earnings, allowing us to identify the causal effects of market interaction. The results show that the experience of market interaction has a negative effect on cooperation efficiency in Market-Partners, that is among those who had to compete with each other on on the same side of the market. This holds for both market-losers and market-winners pairs. By contrast, for Market-Strangers we find the positive effect of market experience cooperation efficiency for market-winner pairs. Our results are consistent with the idea that direct competition damages social ties and the more general notion of state-dependent preferences