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It depends on a number of factors, and it varies highly with each case.
Promotion based on experience may eliminate the problem of favoritism, but in the same time employees may take their work for granted knowing that their promotion is guaranteed.
However knowing that the most experienced will get the promotion lessens tension among workers, however newer, brilliant ones may lack motivation to exert any effort knowing it won't count.
Although promotion based on experience may inspire loyalty among employees, many of the less experienced will be considered just average disregarding that some are harder workers than others.
A company that promotes merit will be more motivating since efficiency and talent are rewarded. Just watch how everyone will try to do their best knowing it's a fair race.
If done fairly and without any nepotistic inclinations, I would vote for promotion based on merit most of the times.
You should consider both experienced and productive; experienced candidates are considered to be less likely to have mistakes compared to those lack of experience. On the other hand, the main idea of hiring people is to get job done and so the key results should be taken into consideration.
Neither.
When you are assessing candidates, the uppermost question in your mind should by "how good will this person be at this job?"
Things like experience and character help you to answer that question, but remember that you are hiring the whole person and not just the bits that came up during a 45 minute conversation.
