THE PRICE OF COMPETITIVENESS IN COMPETITIVE PRICING

This study examines how pricing decisions might be improved. We test t he hypothesis that managers have a tendency to overcompete by comparin g the performance of managers with the performance of computerized str ategies in a Prisoner's Dilemma pricing experiment. We find that the s ubjects in our study obtain lower profits than marched computer strate gies. The subjects appear To value relative performance against compet itors, even when they are explicitly instructed to maximize profits an d are compensated based on profits. The implication for managers is th at pricing to maximize profits may require tolerating the strong perfo rmance of competitors, even to the point of accepting a lower profit t han some or all the competitors. If competitiveness means an adversari al, ''zero-sum game'' view of one 4 competitors, then the price of com petitiveness in competitive markets such as those in our experiment ma y be lower profits. Being less competitive may be more profitable.