Working Paper: CEPR ID: DP16678
Authors: John Thanassoulis
Abstract: Misconduct is widespread; practices such as mis-selling, pump&dump, and money laundering harm counterparties while raising profits. This paper presents a mechanism which can determine what sorts of misconduct can be sustained in competitive equilibrium in concentrated markets, oligopoly settings, and in markets with many small competing firms. The model studied allows general demand and makes a distinction in types of ethical dilemma using current psychological understanding. The paper shows, for example, that markets with many small competing firms are not vulnerable to misconduct if firms respond to entry with niche strategies or if the ethical dilemma draws an emotional response.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased competition in mass-market frameworks (L11) | higher levels of misconduct (K42) |
| increased competition in niche markets (L19) | reduced misconduct (K49) |
| oligopoly competition (L13) | multiple equilibria leading to either clean markets or widespread misconduct (D53) |
| many small firms (L25) | always clean markets (D41) |
| professionalization in financial markets (G18) | mitigate misconduct in mass-market settings (D47) |
| professionalization in concentrated markets (J44) | exacerbate misconduct (K42) |