|UCLA Anderson School of Management -- Policy Area|
Topic: Market Structure and Leniency in Vehicle Emissions Inspections
Friday, Jan 14, 2011 at 2:15PM-3:00PM
UCLA Anderson Cornell Hall D313
Competition among firms has many positive outcomes, including decreased prices, improved quality, and greater innovation. Yet competition can have a darker side when firms can gain competitive advantage through illicit and unethical activities. In this paper, we argue that when customers are either indifferent or attracted to unethical firm behavior, firms will compete through illicit actions in ways that yield dramatically increased social costs. Using over 3 million vehicle emissions tests from over 3,000 firms, we show that increased competition yields increased levels of fraud. Firms with greater numbers of local competitors pass customers at considerably higher rates, suggesting that alternatives for customers create pressure to provide leniency in testing. Additionally we show that large firms and chains seem to be less susceptible to this race to the bottom.
|Link to paper (if available): There is no paper for this talk|