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Competitive pressure and corporate crime

Author

Listed:
  • 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 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, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:110
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    References listed on IDEAS

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    Cited by:

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    3. Collen Lediga & Nadine Riedel & Kristina Strohmaier, 2018. "Combatting Tax Evasion: Evidence from Comparing Commercial and Business Tax Registry," CESifo Working Paper Series 7117, CESifo.
    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; market entry;
    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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