1. 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

2. 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.

3. 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.

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

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