Competition and illicit quality
By: Victor Manuel Bennett, Lamar Pierce, Jason A. Snyder, Michael W. Toffel
Contributors: Pierce, Lamar; Snyder, Jason A.; Toffel, Michael W.; Harvard Business School
Edition: 2nd rev.
Series: Working paper / Harvard Business School -- 12-071; Working paper (Harvard Business School) -- 12-071.
Publisher: Harvard Business School
Published: 2012
Place of publication: [Boston]
Language: eng
Number of pages: 36
Description: Competition among firms can have many positive outcomes, including low prices and high quality. Yet competition can have a darker side when firms gain competitive advantage through illicit and corrupt activities. In this paper, we argue that competition can lead organizations to provide illicit quality that satisfies customer demand but violates laws and regulations and that this outcome is particularly likely 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 form of illicit quality that customers value but is illegal and socially costly. Firms with more local competitors pass customers at considerably higher rates and are more likely to lose customers whom they do not pass, suggesting that the alternatives that competition provides to customers intensify the pressure on facilities to illegally provide leniency. We also show that, at least in contexts in which pricing is restricted, firms use illicit quality as an entry strategy.
Notes: "February 2012, revised May 2012, August 2012" -- Publisher's website.

Includes bibliographical references.