The Nature and Extent of Discrimination in the Marketplace: Evidence from Field Experiments*

Measuring discrimination in the marketplace is one of the most active areas of research in the social sciences. While empirical studies have provided important evidence that discrimination exists in various markets, they rarely allow the analyst to draw firm conclusions concerning the nature of discrimination observed without making strict assumptions on individual-specific unobservables. By combining data from bilateral negotiations in product markets with a series of ancillary field experiments, this study provides a framework that amends this shortcoming. The entire experimental design, which includes field data gathered from more than 1000 participants, provides sharp findings. First, I observe a remarkably strong tendency for minorities (women, nonwhites, and older agents) to receive initial and final offers that are inferior to those received by their majority counterparts. This occurs when agents are acting as buyers and sellers, though the degree of discrimination is much more pronounced when agents are selling their wares. Second, the data strongly indicate that the observed discrimination is not due to animus, but represents statistical discrimination, whereby in their pursuit of profits marketers use observable characteristics to make statistical inference about reservation values of agents. JEL: C9 (Experiments), J7 (Discrimination)