The Value of Competitor Information: Evidence from a Field Experiment

Abstract

To what extent do firms know available information on key competitor decisions, and how does competitor information change their own strategic choices? These questions are fundamental to understanding how firms compete and make strategic decisions, yet systematic evidence on them remains limited. I designed a field experiment across 3,218 differentiated firms in the personal care industry, where firms randomly assigned to treatment received easily accessible information on competitor prices. At baseline, nearly half of treatment firms appeared to lack knowledge of competitor prices. Once treatment firms received competitor information, they were more likely to change their own decisions, aligning them with competitors rather than differentiating. These changes were driven by firms that were more misaligned in their price and quality decisions, and appear to have been performance enhancing. If competitor information was both easily accessible and decision relevant, why did firms not use this information on their own? Results from a follow-up experiment suggest that this lack of knowledge may have been driven by managerial inattention. These findings highlight that limited information processing is a key problem for firms and a central issue in strategy, and raise the possibility that growing availability of competitor data may lead firms to align their decisions more with their competitors. This paper was accepted by Alfonso Gambardella, business strategy. Funding: H. Kim is grateful for the support of Harvard Business School, the Foundations of Human Behavior, the Ewing Marion Kauffman Foundation, and Yelp. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.04062 .