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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 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, 2014. "Competitive Pressure and Corporate Crime," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100454, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc14:100454
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    4. Collen Lediga & Nadine Riedel & Kristina Strohmaier, 2018. "Combatting Tax Evasion: Evidence from Comparing Commercial and Business Tax Registry," CESifo Working Paper Series 7117, CESifo.

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    More about this item

    JEL classification:

    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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