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The interaction between competition and unethical behaviour

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  • Nick Feltovich

    (Monash University)

Abstract

We examine the interplay between unethical behaviour and competition with a lab experiment. Subjects play the role of firms in monopoly, weak competition (Bertrand–Edgeworth duopoly) or strong competition (Bertrand duopoly). Costs are determined either by a computer draw or a self-reported die roll, and pricing decisions are made with knowledge of one’s own costs and—in duopoly—the rival firm’s costs. Under self-reporting, lying is profitable and undetectable except statistically. We find that competition and lying are mutually reinforcing. We observe strong evidence that (behavioural) competition in both duopoly treatments is more intense when lying is possible: prices are significantly lower than when lying is impossible, even controlling for differences in costs. We also observe more lying under duopoly than monopoly—despite the greater monetary incentives to lie in the monopoly case—though these differences are not always significant.

Suggested Citation

  • Nick Feltovich, 2019. "The interaction between competition and unethical behaviour," Experimental Economics, Springer;Economic Science Association, vol. 22(1), pages 101-130, March.
  • Handle: RePEc:kap:expeco:v:22:y:2019:i:1:d:10.1007_s10683-018-9578-z
    DOI: 10.1007/s10683-018-9578-z
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    Cited by:

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    2. Chloe Tergiman & Marie Claire Villeval, 2023. "The Way People Lie in Markets: Detectable vs. Deniable Lies," Management Science, INFORMS, vol. 69(6), pages 3340-3357, June.
    3. Simon Dato & Eberhard Feess & Petra Nieken, 2022. "Lying in Competitive Environments: A Clean Identification of Behavioral Impacts," CESifo Working Paper Series 9861, CESifo.
    4. Benistant, Julien & Villeval, Marie Claire, 2019. "Unethical behavior and group identity in contests," Journal of Economic Psychology, Elsevier, vol. 72(C), pages 128-155.
    5. Benistant, Julien & Galeotti, Fabio & Villeval, Marie Claire, 2022. "Competition, information, and the erosion of morals," Journal of Economic Behavior & Organization, Elsevier, vol. 204(C), pages 148-163.
    6. Chloe Tergiman & Marie Claire Villeval, 2019. "The Way People Lie in Markets," Working Papers halshs-02292040, HAL.
    7. Julien Benistant & Fabio Galeotti & Marie Claire Villeval, 2021. "The Distinct Impact of Information and Incentives on Cheating," Working Papers halshs-03110295, HAL.
    8. Simon Piest & Philipp Schreck, 2021. "Contests and unethical behavior in organizations: a review and synthesis of the empirical literature," Management Review Quarterly, Springer, vol. 71(4), pages 679-721, October.
    9. Nicola Maaser & Thomas Stratmann, 2021. "Costly Voting in Weighted Committees: The case of moral costs," Economics Working Papers 2021-11, Department of Economics and Business Economics, Aarhus University.
    10. Eugen Dimant & Kyle Hyndman, 2019. "Becoming Friends or Foes? How Competitive Environments Shape Social Preferences," Discussion Papers 2019-18, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    11. Cao, Qian & Li, Jianbiao & Niu, Xiaofei, 2022. "White lies in tournaments," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 96(C).
    12. Polterovich, Victor, 2022. "Экономическая Теория И Формирование Человеческих Качеств [Economic theory and the formation of human qualities]," MPRA Paper 111540, University Library of Munich, Germany.
    13. Grundmann, Susanna, 2020. "Do just deserts and competition shape patterns of cheating?," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-79-20, University of Passau, Faculty of Business and Economics.

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    More about this item

    Keywords

    Lying; Dishonesty; Truthfulness; Experiment; Monopoly; Duopoly;
    All these keywords.

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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