How competition affects product quality and how product quality choices impact firms’ operating performance are open empirical questions. We use a setting that is especially suitable to answering these questions: We examine the effects of competition among cryptographic exchanges on their trading volume inflation (fake trading) and the impact of volume inflation on exchanges’ operating performance.We develop statistical measures to detect fake trading, which we validate in several ways and use in analyzing determinants and consequences of trading volume inflation. Various static and dynamic competition measures are positively associated with measure of fake trading at both the exchange and exchange-currency pair levels. Exchanges that inflate trading volume succeed in misleading investors in the short run but are punished in the long run, consistent with the trade off between short-lived increases in rents and future losses due to damaged reputation.