Competition Dynamics and Fraudulent Behavior – Evidence from a Multi-Period Experiment

Abstract

The idea of a relationship between competition and fraudulent behavior is well-anchored in the management and adjacent literature. Empirical evidence suggesting that fraudulent behavior is more prevalent under severe competition has a taken-for-granted quality. However, these findings are widely based on a static perspective on the link between competition and fraudulent behavior, in which competition is considered as constantly high or low. Acknowledging the validity of these findings for stable industry environments prevailing in the past, we argue that assuming constant competition over longer periods of time seems outdated in light of today’s increasingly volatile industries. Thus, we introduce a dynamic perspective, in which we investigate how varying extents of competition over time, or competition dynamics, affect fraudulent behavior. Running a laboratory experiment, we analyze abrupt changes from high to low competition over time and vice versa. By this, we offer a more comprehensive and up-to-date understanding of the link between competition and fraudulent behavior.