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Confidence bias and advertising in imperfectly competitive markets
Author(s) -
Schroeder Elizabeth,
Tremblay Carol Horton,
Tremblay Victor J.
Publication year - 2021
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.3280
Subject(s) - chief executive officer , business , constructive , competition (biology) , profit (economics) , imperfect , marketing , overconfidence effect , imperfect competition , advertising , microeconomics , economics , management , psychology , ecology , social psychology , linguistics , philosophy , process (computing) , computer science , biology , operating system
The purpose of this paper is to investigate whether an owner can enhance corporate profit by delegating responsibility to a chief executive officer who has a biased view of his or her marketing ability. We develop a model of imperfect competition where firms compete in advertising and output. Before competition takes place, each owner makes a strategic decision whether to hire a manager who is overconfident, underconfident, or rationally confident in their marketing ability. In a strategic setting, the results reveal that it is never optimal for owners to hire managers who are rationally confident. Owners will hire managers who are either overconfident or underconfident, depending upon whether advertising is constructive or combative.