| Abstract | In recent years, Chinese enterprises are frequently blamed by producing fake or low-quality goods, according to numerous media exposures. Even worse, whatever the size of the firms, they are herding to the similar ill conduct, resulting in a disaster of product insecurity. This is also an important moral issue on enterprise growth. Facing the explosive immoral act in the whole industry, the government usually enacts weak or powerless rules of regulation, which in turn worsen the problem. This paper, by building upon a mixed oligopoly model, formally analyzes the relationship among the fierce market competition, the explosive immoral act and the inefficient government regulation. In particular, we focus our analysis on the optimal strategy choice of the firms by allowing them to opt for immoral act or innovative technology to cut their production costs. At the end, we characterize the specific condition under which different types of subgame perfect equilibrium (e.g., the explosive immoral act) occurs. |