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Perceiving competitive reactions: The value of accuracy (and paranoia)

Marketing Letters volume 7, pages 115–129 (1996)Cite this article

Abstract

An assumption of much of the literature in marketing strategy is that a firm accurately knows the nature of its interaction with competitors. This study examines this assumption and explores the relationship between firm performance and accuracy in perception. Teams in the Markstrat2 simulation game reported their reactions to competitors, while simultaneously indicating their perceptions of whether competitors had reacted to their decisions in the past. Teams were in general inaccurate in identifying competitive reactions. Further, missing a competitive reaction (not perceiving a competitor's stated reaction) significantly reduced a team's performance. The data suggest that teams may benefit from being paranoid about their competitors; late in the game, the more competitive reactions a team perceived to its moves, the better the firm performed, regardless of accuracy.

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Authors and Affiliations

  1. Marketing Group, College of Business Administration, Northeastern University, 202 Hayden Hall, 02115, Boston, MA, USA

    Bruce H. Clark

  2. Graduate School of Business, Stanford University, Littlefield 339, 94305, Stanford, CA, USA

    David B. Montgomery

  3. Marketing Science Institute, 1000 Massachusetts Ave., 02138, Cambridge, MA, USA

    David B. Montgomery

Authors
  1. Bruce H. Clark
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  2. David B. Montgomery
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Clark, B.H., Montgomery, D.B. Perceiving competitive reactions: The value of accuracy (and paranoia). Market Lett 7, 115–129 (1996). https://doi.org/10.1007/BF00434904

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  • DOI: https://doi.org/10.1007/BF00434904

Key words

  • competition
  • decision making
  • strategy
  • perception
  • accuracy