Self-Serving Behavior in Price-Quality Competition
AbstractManagers like to think well of themselves and of the firms that employ them. Yet, such positive illusions can prejudice the evaluation of market outcomes and, as a result, provoke biased responses. In particular, we examine the possibility that managers self-servingly credit success in the market to product quality but blame failure on price. We draw on the social psychology of causal attributions to substantiate this idea and predict how managers adjust price and quality on the basis of prior results. Next, we report one experiment that tests the different elements of our theory, as well as insights from two surveys and a marketing simulation that add robustness to the findings. Finally, we develop an analytical model of price-quality competition to understand the profit impact of self-serving behavior. Counter to intuition, we find that under certain conditions firms can benefit from the biased actions of their managers.
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Bibliographic InfoPaper provided by University of Zurich, Department of Business Administration (IBW) in its series Working Papers with number 334.
Length: 42 pages
Date of creation: May 2013
Date of revision:
Self-serving behavior; attribution theory; price-quality competition; managerial decision-making;
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
- L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing
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