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The competitive advantage of honesty

Listed author(s):
  • Pigors, Mark
  • Rockenbach, Bettina
Registered author(s):

    We study competitive markets where firms may lie to their workers to reduce costs. Consumers may benefit from firms’ dishonesty through lower market prices. Does firms’ (dis-)honesty affect consumers’ purchasing decisions? Our experiment shows that when honesty is fully transparent, it can provide a competitive advantage: Honest firms sell more and – despite higher costs – achieve higher profits. This finding is in line with our equilibrium predictions when allowing for dishonesty-averse consumers. By identifying circumstances in which consumers – although not the addressee of dishonesty – “punish” firms for their within-firm dishonesty, we contribute both to behavioral ethics and behavioral industrial organization.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0014292116301404
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    Article provided by Elsevier in its journal European Economic Review.

    Volume (Year): 89 (2016)
    Issue (Month): C ()
    Pages: 407-424

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    Handle: RePEc:eee:eecrev:v:89:y:2016:i:c:p:407-424
    DOI: 10.1016/j.euroecorev.2016.09.001
    Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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