Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83497
Authors: 
Baumann, Florian
Friehe, Tim
Year of Publication: 
2013
Series/Report no.: 
DICE Discussion Paper 110
Abstract: 
This paper explores the relationship between the intensity of competition in product markets and firms' incentives to lower their production costs by illegal means. Our framework combines a Salop circle with a crime model à la Becker, allowing us to differentiate between several measures for the intensity of competition. We establish that more firms in the industry (i.e., lower entry costs) reduce the crime rate. Furthermore, whether more intense competition due to the increased substitutability of products raises or lowers the prevalence of criminal behavior can be clearly linked to the impact of such behavior on firms' production costs. Finally, we find that stricter law enforcement may entice more firms to enter the market, despite the higher expected sanction in the event of wrongdoing.
Subjects: 
product market competition
crime
deterrence
market entry
JEL: 
K14
K23
L13
ISBN: 
9783863041090
Document Type: 
Working Paper

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