Competitive Pressure and Corporate Crime

Baumann Florian () and Tim Friehe
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Baumann Florian: Center for Advanced Studies in Law and Economics (CASTLE), University of Bonn, Adenauerallee 42–42, 53113 Bonn, Germany

The B.E. Journal of Economic Analysis & Policy, 2016, vol. 16, issue 2, 647-687

Abstract: This paper explores the relationship between the intensity of product market competition and firms’ incentives to resort to illegal means to lower their production costs. To this end, our framework combines a crime model à la Becker with a Salop circle. When law enforcement includes a fixed fine for illegal conduct, more intense competition due to a higher number of firms in the industry reduces the prevalence of crime, whereas more intense competition due to better substitutability between products may increase or decrease crime. In contrast, when the fine for corporate crime is proportional to profits, more intense competition unambiguously increases the prevalence of crime. In addition, we discuss the implications of the link between product market competition and corporate crime decisions for market entry and optimal law enforcement and elaborate on the relationship between law enforcement and a firm’s ability to commit to refraining from the use of illegal practices.

Keywords: product market competition; crime; deterrence; fine structure (search for similar items in EconPapers)
JEL-codes: K14 K23 L13 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Competitive Pressure and Corporate Crime (2014)
Working Paper: Competitive pressure and corporate crime (2013)
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DOI: 10.1515/bejeap-2015-0064

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