Competitive equilibrium can exacerbate inequality even while total surplus grows.

Evidence

The target article’s model seems to predict that humans will perceive free-market capitalism as maximally fair. Instead, popular culture includes anti-globalization, the “99 percent,” opposition to organ markets, and complaints about the earnings of CEOs, actors, and athletes – despite their rare talents. This might be because partner competition can increase wealth disparities. Consider a simple market with three buyers who value a good X at 9, 6, and 3, respectively, and three sellers whose costs for producing X are 7, 4, and 1, respectively. It is possible for the higher-value buyers to trade with higher-cost sellers, generating 2 surplus per buyer-seller pair to yield 1 per player. But, the competitive equilibrium price is 5, yielding the unequal payoffs of 4, 1, and 0, symmetrically to buyers and sellers, in order of descending values and ascending costs (with a greater total surplus of $10). Competitive markets can exacerbate inequality and people often perceive this as unfair. — Nicolas Baumard, A mutualistic approach to morality, 371

Categorization

• DEEPTHINKING: The worked 3x3 example showing competitive equilibrium maximizing total surplus while producing stark payoff inequality is a compact, fully-generalizable demonstration that efficiency and fairness trade off structurally.
• XREF: Echoes Parable of the Sower’s economic stratification logic and the Occupy/99-percent grievances the reader already maps onto partner-choice framework. — connects to: The exchange sphere’s apparent equality masks the extraction of surplus in production.; Heightened competition redistributed income upward despite energizing growth — David Harvey, The Condition of Postmodernity: An…, 1046; Market competition erodes profits but increases rents. — Yanis Varoufakis, Technofeudalism: What Killed Capitalism, 468

Related

• Heightened competition redistributed income upward despite energizing growth (similarity 0.81)

Broader Connections

• The exchange sphere’s apparent equality masks the extraction of surplus in production. #expands (0.82)