Customer-Driven Misconduct: How Competition Corrupts Business Practices
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Bennett, Victor Manuel
Snyder, Jason A.
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CitationBennett, Victor Manuel, Lamar Pierce, Jason A. Snyder, and Michael W. Toffel. "Customer-Driven Misconduct: How Competition Corrupts Business Practices." Management Science 59, no. 8 (August 2013): 1725–1742. (See Online Appendix at http://nrs.harvard.edu/urn-3:HUL.InstRepos:9667364. Lead article. Nominated for "Best Conference Paper Award" and "SMS Best Conference Paper Prize for Practice Implications" at 2012 Strategic Management Society International Conference.)
AbstractCompetition among firms yields many benefits but can also encourage firms to engage in corrupt or unethical activities. We argue that competition can lead organizations to provide services that customers demand but that violate government regulations, especially when price competition is restricted. Using 28 million vehicle emissions tests from more than 11,000 facilities, we show that increased competition is associated with greater inspection leniency, a service quality attribute that customers value but is illegal and socially costly. Firms with more competitors pass customer vehicles at higher rates and are more likely to lose customers whom they fail, suggesting that competition intensifies pressure on facilities to provide illegal leniency. We also show that, at least in markets in which pricing is restricted, firms use corrupt and unethical practices as an entry strategy.
Citable link to this pagehttp://nrs.harvard.edu/urn-3:HUL.InstRepos:28538426
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