The competitive advantage of honesty

Mark Pigors and Bettina Rockenbach

European Economic Review, 2016, vol. 89, issue C, 407-424

Abstract: We study competitive markets where firms may lie to their workers to reduce costs. Consumers may benefit from firms’ dishonesty through lower market prices. Does firms’ (dis-)honesty affect consumers’ purchasing decisions? Our experiment shows that when honesty is fully transparent, it can provide a competitive advantage: Honest firms sell more and – despite higher costs – achieve higher profits. This finding is in line with our equilibrium predictions when allowing for dishonesty-averse consumers. By identifying circumstances in which consumers – although not the addressee of dishonesty – “punish” firms for their within-firm dishonesty, we contribute both to behavioral ethics and behavioral industrial organization.

Keywords: Social responsibility; Lying; Behavioral ethics; Behavioral industrial organization (search for similar items in EconPapers)
JEL-codes: A13 D03 D82 L10 M14 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:89:y:2016:i:c:p:407-424

DOI: 10.1016/j.euroecorev.2016.09.001

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