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Self-Serving Behavior in Price-Quality Competition

  • Marco Bertini

    ()

    (London Business School, London)

  • Daniel Halbheer

    ()

    (Department of Business Administration (IBW), University of Zurich)

  • Oded Koenigsberg

    ()

    (London Business School, London)

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.

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File URL: http://repec.business.uzh.ch/RePEc/zrh/wpaper/334_IBW_full.pdf
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Paper provided by University of Zurich, Department of Business Administration (IBW) in its series Working Papers with number 334.

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Length: 42 pages
Date of creation: May 2013
Date of revision:
Handle: RePEc:zrh:wpaper:334
Contact details of provider: Web page: http://www.business.uzh.ch

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  1. Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
  2. Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 473-94, July.
  3. 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.
  4. Laibson, David I. & Gabaix, Xavier, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," Scholarly Articles 4554333, Harvard University Department of Economics.
  5. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
  6. Spiegler, Ran, 2014. "Bounded Rationality and Industrial Organization," OUP Catalogue, Oxford University Press, number 9780199334261, March.
  7. Weiner, Bernard, 2000. " Attributional Thoughts about Consumer Behavior," Journal of Consumer Research, University of Chicago Press, vol. 27(3), pages 382-87, December.
  8. 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.
  9. 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.
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