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Competitors or enemies: how attitudes towards competitors influence decision making

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Many reasons have been proposed for an apparent lack of rational decision-making by managers in competitive situations. These include (but are not limited to) the fact that managers frequently have to make decisions with poor or inconsistent information. Managers also have limited ability to process information (bounded rationality) and thus, may resort to simple heuristics to make decisions. Further examples of seemingly irrational decisions are also found in Prospect Theory and in a number of paradoxes highlighted in the economics literature. In this paper, the authors highlight a specific form of sub-optimal decision-making by managers and then propose an explanation for it that obtains from the way in which companies train, socialise and indoctrinate employees (primarily in sales and marketing). They propose that the acculturation process evokes affective reactions towards competitors which, in turn, influence the managerial decision process. In particular, they argue that the acculturation process results in increasing the importance of non-profit maximizing factors in managers' objective functions. Using an experimental approach, they demonstrate that competitive decision-making observed in the market may be the result of utility being derived not only from maximizing own profits but also from decreasing the profits of key competitors. The first part of the study demonstrates the basic tendency of managers to place value on "harming" the competition independent of the impact that competitor performance may have on the performance of their own companies. The second part of the study shows how this tendency can lead managers to make sub-optimal decisions in typical managerial situations. The authors show how this tendency can be manipulated through the type of information that is provided to employees through company training and socialisation. Finally, they measure a number of key ed to managers, i.e. information about "how important it is to harm the competition" communicate personality variables to analyse both their direct impact on managerial decision-making and their effect on the relationship between managerial decision-making and the acculturation process of the firm.

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en

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application/pdf

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http://flora.insead.edu/fichiersti_wp/inseadwp2001/2001-52.pdf

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