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The interaction between competition and unethical behaviour

Published online by Cambridge University Press:  14 March 2025

Nick Feltovich Open the ORCID record for Nick Feltovich [Opens in a new window]
Nick Feltovich*
Affiliation:
Department of Economics, Monash University, Clayton, VIC 3800, Australia
*
nicholas.feltovich@monash.edu
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Abstract

We examine the interplay between unethical behaviour and competition with a lab experiment. Subjects play the role of firms in monopoly, weak competition (Bertrand–Edgeworth duopoly) or strong competition (Bertrand duopoly). Costs are determined either by a computer draw or a self-reported die roll, and pricing decisions are made with knowledge of one’s own costs and—in duopoly—the rival firm’s costs. Under self-reporting, lying is profitable and undetectable except statistically. We find that competition and lying are mutually reinforcing. We observe strong evidence that (behavioural) competition in both duopoly treatments is more intense when lying is possible: prices are significantly lower than when lying is impossible, even controlling for differences in costs. We also observe more lying under duopoly than monopoly—despite the greater monetary incentives to lie in the monopoly case—though these differences are not always significant.

Keywords

LyingDishonestyTruthfulnessExperimentMonopolyDuopoly

JEL classification

D40: General A13: Relation of Economics to Social Values K42: Illegal Behavior and the Enforcement of Law C90: General

Information

Type
Original Paper
Information
Experimental Economics , Volume 22 , Issue 1 , 15 March 2019 , pp. 101 - 130
Copyright
Copyright © 2018 Economic Science Association

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Footnotes

Electronic supplementary material The online version of this article (https://doi.org/10.1007/s10683-018-9578-z) contains supplementary material, which is available to authorized users.

Financial support from Monash University is gratefully acknowledged. We thank Lana Friesen, Lata Gangadharan, Philip J. Grossman, Mehmet Y. Gürdal, Andreas Ortmann, Maroš Servátka, an associate editor, and two anonymous referees for helpful suggestions and comments.

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