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

Author

Listed:
  • David B. Huffman
  • Lamar Pierce
  • Alex Rees-Jones
  • Germán J. Reyes

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

  • David B. Huffman & Lamar Pierce & Alex Rees-Jones & Germán J. Reyes, 2026. "Competition and Anomalies Redux: Evidence from U.S. Auto Dealers," NBER Working Papers 35454, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35454
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    More about this item

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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