Competition and Anomalies Redux: Evidence from U.S. Auto Dealers

David Huffman, Lamar Pierce, Alex Rees-Jones and Germán Reyes

No 35454, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine a choice between bonus contracts offered to dealers of a U.S. auto manufacturer. In our data, dealers select the non-profit-maximizing option in 20 percent of observations, costing the mistaken dealers $18,453 per year on average. We examine how the propensity to make this mistake varies with competition, identified both cross-sectionally and within dealers over time. Both analyses show that greater competition substantially lowers the rate of mistakes. However, even in the most competitive markets, consequential mistakes persist. Our results suggest that competition disciplines mainly through within-dealer changes in behavior rather than entry and exit.

JEL-codes: D03 M52 (search for similar items in EconPapers)
Date: 2026-07
Note: LS
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Working Paper: Competition and Anomalies Redux: Evidence from U.S. Auto Dealers (2026)
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