The price of competitiveness in competitive pricing |
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Authors: | David E Griffith Roland T Rust |
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Institution: | (1) University of Texas at Austin, USA;(2) the Frank D. Hickingbotham School of Business at Ouachita Baptist University, USA;(3) University of North Carolina at Chapel Hill, USA;(4) Owen Graduate School of Management, Vanderbilt University, USA |
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Abstract: | This study examines how pricing decisions might be improved. We test the hypothesis that managers have a tendency to overcompete
by comparing the performance of managers with the performance of computerized strategies in a Prisoner’s Dilemma pricing experiment.
We find that the subjects in our study obtain lower profits than matched computer strategies. The subjects appear to value
relative performance against competitors, even when they are explicitly instructed to maximize profits and are compensated
based on profits. The implication for managers is that pricing to maximize profits may require tolerating the strong performance
of competitors, even to the point of accepting a lower profit than some or all the competitors. If competitiveness means an
adversarial, “zero-sum game” view of one’s competitors, then the price of competitiveness in competitive markets such as those
in our experiment may be lower profits. Being less competitive may be more profitable.
His major areas of research are pricing competition and channels of distribution. His research has been published inMarketing Letters andJournal of Marketing Channels. He has also cowritten a chapter on wholesaler liability for the bookWholesale Distribution Channels: New Insights and Perspectives, edited by Bert Rosenblum.
where he directs Vanderbilt’s Center for Services Marketing. His 1995 article “Return on Quality (ROQ): Making Service Quality
Financially Accountable” (written with Anthony Zohorik and Timothy Keiningham) won theJournal of Marketing’s Alpha Kappa Psi award for the article that had the greatest impact on the practice of marketing. He has also won best article
awards from theJournal of Advertising and theJournal of Retailing. He serves on the editorial boards of seven journals, includingMarketing Science and theJournal of Marketing Research. His books includeService Marketing, Return on Quality, Advertising Media Models, Service Quality, andReadings in Service Marketing. |
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