The competitive advantage of honesty Pierre-Marie Poirier presenting the survey about the « competitive advantage of honesty » from Mark Pigors and Bettina Rockenbach. First, I would like to draw the context of the study, which is a recent one, 2016. Mark Pigors, Bettina Rockenbach

The competitive advantage of honesty CONTEXT competitive markets costs reductionS firms lies to their workers Consumers’ benefit from dishonesty consumers’ decisions and honesty consumers « punish » firms honest firms sell more We consider markets being competitive and we care about a potential costs reduction thanks to dishonesty: in our case, where firms can lie to workers. We reflect upon consumers’ benefit on such dishonesty. Thus, we focus on consumers’ decisions with respect to honesty. We try to understand whether consumers can « punish » dishonest firms or not. Finally, we would like to demonstrate that honest firms sell more.

The competitive advantage of honesty CONTEXT NGOs Animal welfare Moral Beliefs Human rights Political matters Workers’ rights Let’s remain some characteristics of present consumers’ demand, specifically in developed countries. An increasing number of people build now their social responsibility as consumers by considering: Human rights, Political issues, Workers’ rights, Animal rights, etc. and assign more and more importance to NGOs and pay more and more attention to their personal moral beliefs.

The competitive advantage of honesty FRAMEWORK Previous works on consumers : honesty  transparency transparency  buying decisions Consumer social responsibility Impact on global consumption Consumers’ buying decisions Competitive advantages The previous works on these topics conclude that consumers only notice honesty in transparent situations and that they should be subjects of buying decisions’ adjustments in such transparency situations. Now researchers try to perceive the social responsibility of consumers, its impact on global consumption, they try to understand the ways of consumption and finally try to figure out the potential competitive advantages. CONSUMER RESEARCH

The competitive advantage of honesty CONDITIONS Let’s underline the aspects of our experiment. Bertrand Duopoly Consumers X 2 Firms X 2 Good X 1 ORSEE

The competitive advantage of honesty CONDITIONS We consider a Bertrand duopoly i.e. the firms are price competitive. Bertrand Duopoly (price competition) Consumers X 2 Firms X 2 Good X 1 ORSEE

The competitive advantage of honesty CONDITIONS Two consumers have a former fixed valuation of the good they are buying. Bertrand Duopoly Consumers X 2 Firms X 2 Good X 1 fixed valuation ORSEE

The competitive advantage of honesty CONDITIONS We consider two firms involving one manager and one worker each: - Managers fix workers’ wages. Bertrand Duopoly Consumers X 2 Firms X 2 Good X 1 ORSEE

The competitive advantage of honesty CONDITIONS - Managers fix the price of the unique good sold. We consider firms selling fully substitutable goods, only one in our experiment. Bertrand Duopoly Consumers X 2 Firms X 2 Good X 1 price ORSEE

The competitive advantage of honesty THE GAME Let’s describe our experiment. Price € Info  Wage € Profitability ?  € Price € Info ORSEE

The competitive advantage of honesty THE GAME The workers are asked to guess the profitability of the firm. The likelihood of success is equally distributed. Given this guess, they can be paid more or less according to their managers’ decisions. Profitability Wage ORSEE

The competitive advantage of honesty THE GAME The managers fix the price of the good. In addition, they can decide to pay their workers more if they decide to tell them their guess was right or less if they decide to tell them their guess was wrong. Thus, they can decide to lie or not in a way to pay less or more. Price Profitability Info Wage ORSEE

The competitive advantage of honesty THE GAME The consumers decide to accept or not the offered price of the firms given that they have some information about the firms or not… Price Info Buy ORSEE

The competitive advantage of honesty THE GAME No Info: Consumers only know the price of the good: Accept / reject. Wage Info: Price + They know the wage level of the workers given by managers. Full Info: Price + Wage + They know whether managers lied or not to fix the wage. WAGE INFO FULL INFO NO INFO ORSEE

The competitive advantage of honesty RESULTS In No Info consumers buy the cheaper good. In Wage Info, the higher is the wage, the more consumers buy. In Full Info, consumers reward honest managers and punish dishonest managers. ! ORSEE

The competitive advantage of honesty RESULTS There is some degree of honesty as well as some managers who never lie. In No Info, honesty is costly and unprofitable for the managers. In Wage Info, the profits of honest and dishonest managers are similar. In Full Info, honest firms make significantly more profit than dishonest firms. ! ORSEE

The competitive advantage of honesty RESULTS No Info: wage-level is low. Wage Info + Full Info: Information significantly increases the overall honesty. Due to increased honesty, wages are significantly higher in the information treatments. ! ORSEE

The competitive advantage of honesty THE GAME Interestingly, there are no differences regarding honesty or wages between the two information conditions. Wage Info seems sufficient to increase wages and honesty. This allows to conclude an aversion from consumers to buying from dishonest firms. The effect of honesty is strong enough to make it a competitive advantage. Indeed, honest firms make higher profits by selling more even if prices are higher. PROFITS WAGES INFO + HONESTY ORSEE

The competitive advantage of honesty Thanks for reading, be honest and do not hesitate to read the Word version. PRESENTATION IN WORD FORMAT 