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An Experimental Investigation of the Impact of Information on Competitive Decision Making

College of Business Administration, California State University, Long Beach, California 90840
Graduate School of Management, University of California, Irvine, California 92697-3125
John E. Anderson Graduate School of Management, University of California, Los Angeles, California 90095-1481
cabramso{at}csulb.edu
iscurrim{at}uci.edu
rakesh.sarin{at}anderson.ucla.edu

Managers often employ market response models as decision aids and historical information of competitors' market outcomes to aid their competitive decisions in oligopolistic settings. However, little is known about how access to a decision aid or the availability of competitors' market outcomes impact a firm's competitive decisions (e.g., prices) or market outcomes resulting from those decisions (e.g., profits), or how managers make these decisions across such informational conditions. Hence, the objective of this paper is twofold. First, we investigate whether access to a decision aid and historical information of competitors' outcomes yields more- or less-competitive decisions and outcomes. Second, we determine which learning constructs, such as choice reinforcement and beliefs about projected profits, best explain competitive actions across various information conditions. We find that relative to the availability of competitive information, access to a decision aid has a larger effect on lowering prices and profits. We also find that in two-firm markets, price competition is even more intense than in five-firm markets. Similarly, the availability of market share information leads to more aggressive pricing even when profits are held constant. Finally, we outline the implications of our findings in making managerial resource allocations to market research endeavors.

Key Words: experimental game theory; competitive decision making; information
History: Received: March 1, 2002;