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Effects of Objectives and Information on Managerial Decisions and Profitability

  • JS Armstrong

    (The Wharton School - University of Pennsylvania)

  • Fred Collopy

    (Case Western Reserve University,)

Managers are often advised, 'beat your competitors,' which sometimes contrasts with the advice, 'do the best for your firm.' This may lead managers to focus on comparative measures such as market share. Drawing on game theory, the authors hypothesize that managers are competitor oriented under certain conditions, in particular, when they are provided with information about competitors' performance. Empirical studies lead to the additional hypothesis that a competitor orientation is detrimental to performance. To examine these hypotheses, the authors conduct two studies. The first is a laboratory study in which 1,016 subjects made pricing decisions. When information about the competitor's profits was provided, over 40% of the subjects were willing to sacrifice part of their company's profits to beat or harm the competitor. Such competitor-oriented behavior occurred across a variety of treatments. The second is a field study used to examine the performance over a half- century of 20 large U.S. firms with differing objectives. Firms with competitor-oriented (market, share) objectives were less profitable and less likely to survive than those whose objectives were directly oriented to profits.

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File URL: http://econwpa.repec.org/eps/get/papers/0412/0412014.pdf
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Paper provided by EconWPA in its series General Economics and Teaching with number 0412014.

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Length: 22 pages
Date of creation: 06 Dec 2004
Date of revision:
Handle: RePEc:wpa:wuwpgt:0412014
Note: Type of Document - pdf; pages: 22
Contact details of provider: Web page: http://econwpa.repec.org

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  1. JS Armstrong & Roderick J. Brodie, 2004. "Effects of Portfolio Planning Methods on Decision Making: Experimental Results," General Economics and Teaching 0412016, EconWPA.
  2. Parks, Bill & Pharr, Steven W. & Lockeman, Bradley D., 1994. "A marketer's guide to Clausewitz: Lessons for winning market share," Business Horizons, Elsevier, vol. 37(4), pages 68-73.
  3. Shimp, Terence A & Hyatt, Eva M & Snyder, David J, 1991. " A Critical Appraisal of Demand Artifacts in Consumer Research," Journal of Consumer Research, University of Chicago Press, vol. 18(3), pages 273-83, December.
  4. Mueller, Dennis C., 1992. "The corporation and the economist," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 147-170, June.
  5. Cynthia A. Montgomery & Birger Wernerfelt, 1991. "Sources of Superior Performance: Market Share Versus Industry Effects in the U.S. Brewing Industry," Management Science, INFORMS, vol. 37(8), pages 954-959, August.
  6. Anterasian, Cathy & Graham, John L., 1989. "When it's good management to sacrifice market share," Journal of Business Research, Elsevier, vol. 19(3), pages 187-213, November.
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