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Competition and the Reputational Costs of Litigation

Year: 2025

Type: article

Abstract: We study the role of competition in customers’ reactions to litigation against firms, using anonymized mobile phone location data. A class action lawsuit filing is followed by a 4% average reduction in customer visits to target firms’ outlets in the following months. The effect strongly depends on competition. Outlets facing more competition experience significantly larger negative effects. Closer competition matters more, both in terms of geographic and industry proximity. Announcement returns and quarterly accounting revenues around lawsuit filings also strongly depend on competition. Our results suggest that competition is an important component in customers’ ability to discipline firms for misbehavior.

Source: Zurich Open Repository and Archive (University of Zurich)

DOI: 10.5167/uzh-279388

Authors: von Meyerinck, Felix, Pursiainen, Vesa, Schmid, Markus

Language: English

Topic: Law, Economics, and Judicial Systems

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: green

OpenAlex ID: W6948769494

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