C ompetition among firms yields many benefits but can also encourage firms to engage in corrupt or unethical activities. We argue that competition can lead organizations to provide services that customers demand but that violate government regulations, especially when price competition is restricted. Using 28 million vehicle emissions tests from more than 11,000 facilities, we show that increased competition is associated with greater inspection leniency, a service quality attribute that customers value but is illegal and socially costly. Firms with more competitors pass customer vehicles at higher rates and are more likely to lose customers whom they fail, suggesting that competition intensifies pressure on facilities to provide illegal leniency. We also show that, at least in markets in which pricing is restricted, firms use corrupt and unethical practices as an entry strategy.

This paper examines how firms' organizational form affects prices negotiated. Negotiated prices are one factor determining whether a vendor or customer captures the value from a transaction. Firms that systematically negotiate more effectively capture more value. Research has investigated individual- and market-level determinants of negotiation outcomes, but little has been done on the firm-level determinants of negotiated prices. I present a first look at one feature, sales process: whether salespeople handle the entire sale in parallel or customers begin with less experienced salespeople who can escalate difficult assignments. I model firms' choice of sales process as a biform game and test predictions of the model using a combination of transaction-level data on new car purchases in the United States and a unique survey of dealership management practices. I find that a serial process has implications consistent with improving firms' bargaining power and reducing customers' outside options. This paper was accepted by Bruno Cassiman, business strategy.

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Research Summary Scholars have traditionally characterized the variation in firm performance as determined by conditions after entry, where the entry decision is a one‐shot binary choice determined by cost–benefit analysis. However, recent theoretical work has posited that the entry decision is an outcome of a learning process and that the information acquired during the pre‐entry period shapes subsequent performance dynamics. We provide the first systematic data on the pre‐entry period using a nationally representative survey. We document the activities that prospective entrants undertake, finding variation according to opportunity costs, prior experience, and confidence levels. Our results suggest the pre‐entry period is shaped by a series of choices by prospective entrants as they contemplate entry, further exploration, or ending the entrepreneurial process. Managerial Summary We created and implemented a nationally representative survey on the entrepreneurial activities of Americans. Several interesting findings emerged. First, approximately a third of Americans report having had a business idea in the past 5 years, motivated in the vast majority of cases by lifestyle concerns rather than the pursuit of significant business opportunities. Fewer than half of those who considered starting a business take even the lowest cost steps, like searching the Internet for potential competitors or speaking with a friend. Our findings reveal an entrepreneurial process which involves a significant pre‐entry period where prospective entrepreneurs seek to acquire information about the quality of their idea, perform administrative tasks to prepare for launch and encounter frictions that impede their progress.

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