Economists and professionals praise the
merits of competition, as it leads to lower prices and improvements
in quality. But in the automobile smog-testing industry, competition
can lead to corruption and even public health problems, according to
research by USC Marshall School of Business Assistant Professor of
Management Victor Bennett.
- Smog check firms that were clustered among other competing smog-check firms were more likely to be lenient, ensuring that customer cars passed when they should have failed.
- Firms that were new to the business also were more likely to pass cars that likely should have failed.
- In New York State alone, these practices could have passed 39,000 cars that should have failed.
"There's a strong sentiment that
competition is a positive thing," Bennett said. "It makes
firms more efficient, makes service quality and products better, and
drives down prices. But it works through giving customers what they
want, and sometimes doing so is bad for others." The research
looked at 28 million emissions tests from 11,000 smog check
facilities in New York. Smog check firms that faced more local
competitors gave cars a passing grade at higher rates than firms that
enjoyed less competition. The researchers' findings suggest that
competing firms passed more cars because they were afraid if they
failed a customer's car, that customer would get it tested somewhere
else.
One problem leading to potentially
illicit competition is the way the smog-check industry is regulated,
the study shows. In New York State, smog-testing facilities must
charge $27 for tests in the New York City area, and $11 in the rest
of the state. Since these prices are fixed for all firms, "facilities
must compete on quality," the researchers wrote. "In
emissions testing, the critical dimension of quality is the test
outcome." By passing customers illegally, the emissions testing
firm provides what the customer perceives as quality service. If they
don't pass the customer's car, the customer goes to a firm that will,
researchers wrote.
Falsely passing cars has consequences
beyond economic corruption. Carbon monoxide, a common tailpipe
emission, can ultimately block the healthy transport of oxygen into
our cells and tissues, while emitted carbon compounds and nitrogen
oxides produce ozone, which can accelerate respiratory problems. Smog
testing has been a major weapon against this type of air pollution
produced by motor vehicles.
"In New York, our results suggest
that 1 of every 100 cars tested that should fail, pass instead,"
said Bennett. "We can't specify exactly how many cases are due
to manipulated passing, but the study ties competition to illicit
quality. This brings front and center the trade-off between the
benefits of competition and the costs."
Bennett is now hoping to look at the
effects of crackdowns on facilities by government regulators, and
whether such action yields any real results in the industry.
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