Customer-driven misconduct: How competition corrupts business practices

Published

Journal Article

Competition among firms yields many benefits but can also encourage firms to engage in corrupt or unethical activities. We argue that competition can lead organizations to provide services that customers demand but that violate government regulations, especially when price competition is restricted. Using 28 million vehicle emissions tests from more than 11,000 facilities, we show that increased competition is associated with greater inspection leniency, a service quality attribute that customers value but is illegal and socially costly. Firms with more competitors pass customer vehicles at higher rates and are more likely to lose customers whom they fail, suggesting that competition intensifies pressure on facilities to provide illegal leniency. We also show that, at least in markets in which pricing is restricted, firms use corrupt and unethical practices as an entry strategy. © 2013 INFORMS.

Full Text

Duke Authors

Cited Authors

  • Bennett, VM; Pierce, L; Snyder, JA; Toffel, MW

Published Date

  • August 1, 2013

Published In

Volume / Issue

  • 59 / 8

Start / End Page

  • 1725 - 1742

Electronic International Standard Serial Number (EISSN)

  • 1526-5501

International Standard Serial Number (ISSN)

  • 0025-1909

Digital Object Identifier (DOI)

  • 10.1287/mnsc.1120.1680

Citation Source

  • Scopus