Effects of Objectives and Information on Managerial Decisions and Profitability

J. Armstrong and Fred Collopy
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Fred Collopy: Case Western Reserve University,

General Economics and Teaching from University Library of Munich, Germany

Abstract: 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.

Keywords: management; decisions (search for similar items in EconPapers)
JEL-codes: A (search for similar items in EconPapers)
Pages: 22 pages
Date: 2004-12-06
New Economics Papers: this item is included in nep-acc and nep-bec
Note: Type of Document - pdf; pages: 22
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpgt:0412014

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