CEO Bias and Product Substitutability in Oligopoly Games

Elizabeth Schroeder, Carol Horton Tremblay and Victor J. Tremblay
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Carol Horton Tremblay: Department of Economics, Oregon State University, Corvallis, OR 97331, USA
Victor J. Tremblay: Department of Economics, Oregon State University, Corvallis, OR 97331, USA

Games, 2022, vol. 13, issue 2, 1-23

Abstract: We investigate why a firm might purposefully hire a chief executive officer (CEO) who under- or over-estimates the degree of substitutability between competing products. This counterintuitive result arises in imperfect competition because CEO bias can affect rival behavior and the intensity of competition. We lay out the conditions under which it is profitable for owners to hire biased managers. Our work shows that a universal policy that effectively eliminates such biases need not improve social welfare.

Keywords: behavioral economics; firm objectives; Cournot model; Bertrand model; Cournot–Bertrand model (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2022
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