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Self-Serving Behavior in Price-Quality Competition

Author

Listed:
  • Marco Bertini

    () (London Business School, London)

  • Daniel Halbheer

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

  • Oded Koenigsberg

    () (London Business School, London)

Abstract

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.

Suggested Citation

  • Marco Bertini & Daniel Halbheer & Oded Koenigsberg, 2013. " Self-Serving Behavior in Price-Quality Competition," Working Papers 334, University of Zurich, Department of Business Administration (IBW).
  • Handle: RePEc:zrh:wpaper:334
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    References listed on IDEAS

    as
    1. 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.
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    3. 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.
    4. Xavier Gabaix & David Laibson, 2018. "Shrouded attributes, consumer myopia and information suppression in competitive markets," Chapters,in: Handbook of Behavioral Industrial Organization, chapter 3, pages 40-74 Edward Elgar Publishing.
    5. 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.
    6. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
    7. 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.
    8. Weiner, Bernard, 2000. " Attributional Thoughts about Consumer Behavior," Journal of Consumer Research, Oxford University Press, vol. 27(3), pages 382-387, December.
    9. Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Self-serving behavior; attribution theory; price-quality competition; managerial decision-making;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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