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Competitive pressure and corporate crime

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  • Baumann, Florian
  • Friehe, Tim

Abstract

This paper explores the relationship between the intensity of competition in product markets and firms' incentives to lower their production costs by illegal means. Our framework combines a Salop circle with a crime model à la Becker, allowing us to differentiate between several measures for the intensity of competition. We establish that more firms in the industry (i.e., lower entry costs) reduce the crime rate. Furthermore, whether more intense competition due to the increased substitutability of products raises or lowers the prevalence of criminal behavior can be clearly linked to the impact of such behavior on firms' production costs. Finally, we find that stricter law enforcement may entice more firms to enter the market, despite the higher expected sanction in the event of wrongdoing. --

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Bibliographic Info

Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 110.

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Date of creation: 2013
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Handle: RePEc:zbw:dicedp:110

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Keywords: product market competition; crime; deterrence; market entry;

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  1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  2. Datta, Sudip & Iskandar-Datta, Mai & Singh, Vivek, 2013. "Product market power, industry structure, and corporate earnings management," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3273-3285.
  3. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  4. Andrei Shleifer, 2004. "Does Competition Destroy Ethical Behavior?," NBER Working Papers 10269, National Bureau of Economic Research, Inc.
  5. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: An Inverted-U Relationship," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 701-728, May.
  6. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
  7. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
  8. Laszlo Goerke & Marco Runkel, 2007. "Tax Evasion and Competition," CESifo Working Paper Series 2104, CESifo Group Munich.
  9. Alexander, Cindy R & Arlen, Jennifer & Cohen, Mark A, 1999. "Regulating Corporate Criminal Sanctions: Federal Guidelines and the Sentencing of Public Firms," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 393-422, April.
  10. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  11. Sjoquist, David Lawrence, 1973. "Property Crime and Economic Behavior: Some Empirical Results," American Economic Review, American Economic Association, vol. 63(3), pages 439-46, June.
  12. Harford, Jon D., 1978. "Firm behavior under imperfectly enforceable pollution standards and taxes," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 26-43, March.
  13. Baumann, Florian & Friehe, Tim, 2012. "On the evasion of employment protection legislation," Labour Economics, Elsevier, vol. 19(1), pages 9-17.
  14. Carmen Arguedas, 2013. "Pollution standards, technology investment and fines for non-compliance," Journal of Regulatory Economics, Springer, vol. 44(2), pages 156-176, October.
  15. Ferrer, Rosa, 2010. "Breaking the law when others do: A model of law enforcement with neighborhood externalities," European Economic Review, Elsevier, vol. 54(2), pages 163-180, February.
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