Market Competition and Discrimination

Abstract

Becker (1957) famously postulated that taste-based discrimination should disappear in the long run if the market operates competitively. This study provides evidence in support of this idea by carrying out a field experiment in the context of the rice market in Bangladesh. We recruit professional rice buyers (middlemen) to act as judges in a rice competition by providing their quality rating and willingness to pay (WTP) for rice samples that we randomly associate with farmers bearing ethnic majority or minority names. First, we find that there is no ethnic difference in buyers' evaluation of rice quality. Second, we find that local buyers, who have local monopsony power, discriminate against ethnic minority farmers by expressing a lower WTP for their rice (2.7% less) relative to that of ethnic majority farmers. Third, we find that wholesale buyers, who face fierce competition in the marketplace, do not discriminate against ethnic minority farmers in terms of their WTP for rice. In terms of mechanisms, we show through a second lab-in-the-field experiment and survey information that local and wholesale buyers do not have different tastes for discrimination. This suggests that market competition can eliminate the discrimination of wholesale buyers.