Self-Serving Behavior in Price-Quality Competition
Managers 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.
|Date of creation:||May 2013|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.business.uzh.ch|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ran Spiegler, 2005.
"Competition over Agents with Boundedly Rational Expectations,"
122247000000000535, UCLA Department of Economics.
- Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
- Weiner, Bernard, 2000. " Attributional Thoughts about Consumer Behavior," Journal of Consumer Research, Oxford University Press, vol. 27(3), pages 382-87, December.
- Xavier Gabaix & David Laibson, 2005.
"Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets,"
NBER Working Papers
11755, National Bureau of Economic Research, Inc.
- Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 505-540.
- Laibson, David I. & Gabaix, Xavier, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," Scholarly Articles 4554333, Harvard University Department of Economics.
- Spiegler, Ran, 2014.
"Bounded Rationality and Industrial Organization,"
Oxford University Press, number 9780199334261, May.
- Philippe Aghion & Patrick Bolton, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Oxford University Press, vol. 59(3), pages 473-494.
- Cooper, Arnold C. & Woo, Carolyn Y. & Dunkelberg, William C., 1988. "Entrepreneurs' perceived chances for success," Journal of Business Venturing, Elsevier, vol. 3(2), pages 97-108.
- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414.
- Todd R. Kaplan & Bradley J. Ruffle, 2004. "The Self-serving Bias and Beliefs about Rationality," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 237-246, April.
- Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
When requesting a correction, please mention this item's handle: RePEc:zrh:wpaper:334. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Daniela Koller)
If references are entirely missing, you can add them using this form.