Customer-Driven Misconduct: How Competition Corrupts Business Practices

Management Science 59 (8), 1725-1742

33 Pages Posted: 16 Feb 2012 Last revised: 11 Dec 2013

Victor Manuel Bennett

Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Lamar Pierce

Washington University, Saint Louis - John M. Olin School of Business

Jason Snyder

University of California, Los Angeles (UCLA) - Anderson School of Management

Michael W. Toffel

Harvard Business School

Date Written: October 8, 2012

Abstract

Competition 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.

Suggested Citation

Bennett, Victor Manuel and Pierce, Lamar and Snyder, Jason and Toffel, Michael W., Customer-Driven Misconduct: How Competition Corrupts Business Practices (October 8, 2012). Management Science 59 (8), 1725-1742. Available at SSRN: https://ssrn.com/abstract=2005779 or http://dx.doi.org/10.2139/ssrn.2005779

Victor Manuel Bennett

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

HOME PAGE: http://sites.duke.edu/bennett/

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Lamar Pierce

Washington University, Saint Louis - John M. Olin School of Business ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-5205 (Phone)

Jason Snyder

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Michael W. Toffel (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States
617.384.8043 (Phone)

Paper statistics

Downloads
307
Rank
79,084
Abstract Views
1,658