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Competition and Anomalies Redux: Evidence from U.S. Auto Dealers

Author

Listed:
  • Huffman, David

    (University of Pittsburgh)

  • Pierce, Lamar

    (Washington University in St. Louis)

  • Rees-Jones, Alex

    (University of Pennsylvania, Wharton School and NBER)

  • Reyes, Germán

    (Middlebury College)

Abstract

We examine a choice between bonus contracts offered to dealers of a U.S. auto manufacturer. In our data, dealers select the non-profit-maximizing option in 20 percent of observations, costing the mistaken dealers $18,453 per year on average. We examine how the propensity to make this mistake varies with competition, identified both cross-sectionally and within dealers over time. Both analyses show that greater competition substantially lowers the rate of mistakes. However, even in the most competitive markets, consequential mistakes persist. Our results suggest that competition disciplines mainly through within-dealer changes in behavior rather than entry and exit.

Suggested Citation

  • Huffman, David & Pierce, Lamar & Rees-Jones, Alex & Reyes, Germán, 2026. "Competition and Anomalies Redux: Evidence from U.S. Auto Dealers," IZA Discussion Papers 18766, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18766
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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