Price and Quality Decisions by Self-Serving Managers
International Journal of Research in Marketing, Forthcoming
Posted: 16 Aug 2012 Last revised: 11 Sep 2019
Date Written: September 10, 2019
We present a theory of price and quality decisions by managers who are self-serving. In the theory, firms stress the price or quality of their products, but not both. Accounting for this, managers exploit any uncertainty about the cause of market outcomes to credit positive results to the dominant, "strategic" factor and blame negative results on the other -- as doing so is psychologically rewarding. The problem with biased attributions, however, is that they prompt biased decisions. We motivate this argument with evidence from one experiment and then develop a model to understand the cost of the bias under different market conditions. Counter to intuition, we find that firms in a competitive setting can profit from the self-serving nature of their managers.
Keywords: Causal reasoning, self-serving bias, strategic orientation, managerial decision-making
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