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Competitive pressure and corporate crime


  • Baumann, Florian
  • Friehe, Tim


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.

Suggested Citation

  • Baumann, Florian & Friehe, Tim, 2013. "Competitive pressure and corporate crime," DICE Discussion Papers 110, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  • Handle: RePEc:zbw:dicedp:110

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    References listed on IDEAS

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    More about this item


    product market competition; crime; deterrence; market entry;

    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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