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Competitive Pressure and Corporate Crime

Author

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  • Baumann Florian

    (Center for Advanced Studies in Law and Economics (CASTLE), University of Bonn, Adenauerallee 42–42, 53113 Bonn, Germany)

  • Friehe Tim

    (Public Economics Group, University of Marburg, Am Plan 2, 35037 Marburg, Germany CESifo, Munich, Germany)

Abstract

This paper explores the relationship between the intensity of product market competition and firms’ incentives to resort to illegal means to lower their production costs. To this end, our framework combines a crime model à la Becker with a Salop circle. When law enforcement includes a fixed fine for illegal conduct, more intense competition due to a higher number of firms in the industry reduces the prevalence of crime, whereas more intense competition due to better substitutability between products may increase or decrease crime. In contrast, when the fine for corporate crime is proportional to profits, more intense competition unambiguously increases the prevalence of crime. In addition, we discuss the implications of the link between product market competition and corporate crime decisions for market entry and optimal law enforcement and elaborate on the relationship between law enforcement and a firm’s ability to commit to refraining from the use of illegal practices.

Suggested Citation

  • Baumann Florian & Friehe Tim, 2016. "Competitive Pressure and Corporate Crime," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 647-687, April.
    • Handle: RePEc:bpj:bejeap:v:16:y:2016:i:2:p:647-687:n:9
    DOI: 10.1515/bejeap-2015-0064
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    Cited by:

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    3. Matthew D. Rablen & Andrew Samuel, 2021. "Self‐reporting and Market Structure," Economica, London School of Economics and Political Science, vol. 88(351), pages 782-808, July.
    4. Dechenaux Emmanuel & Samuel Andrew, 2019. "Announced or Surprise Inspections and Oligopoly Competition," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(1), pages 1-20, January.

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    More about this item

    Keywords

    product market competition; crime; deterrence; fine structure;
    All these keywords.

    JEL classification:

    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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