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  • August 2013
  • Article
  • Management Science

Customer-Driven Misconduct: How Competition Corrupts Business Practices

By: Victor Manuel Bennett, Lamar Pierce, Jason A. Snyder and Michael W. Toffel
  • Format:Print
  • | Pages:33
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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.

Keywords

Competition; Crime and Corruption; Management Practices and Processes; Ethics; Consumer Behavior; Customer Satisfaction; Auto Industry; Service Industry

Citation

Bennett, 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. (Online Appendix.  Lead article. Nominated for "Best Conference Paper Award" and "SMS Best Conference Paper Prize for Practice Implications" at 2012 Strategic Management Society International Conference.)

Supplemental Information

Online Appendix
Customer Driven-Misconduct: How Competition Corrupts Business Practices - appendix
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About The Author

Michael W. Toffel

Technology and Operations Management
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Related Work

    • August 2013
    • Management Science

    Customer-Driven Misconduct: How Competition Corrupts Business Practices - Appendix

    By: Victor Manuel Bennett, Lamar Pierce, Jason A. Snyder and Michael W. Toffel
Related Work
  • Customer-Driven Misconduct: How Competition Corrupts Business Practices - Appendix By: Victor Manuel Bennett, Lamar Pierce, Jason A. Snyder and Michael W. Toffel
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