The Value of Competitor Information: Evidence from a Field Experiment

Abstract:

Data on competitors have become increasingly accessible in recent years, raising the potential for firms to inform their decisions with a better understanding of the competitive environment. To what extent are firms aware of readily available information on key competitor decisions, and how does this information impact firms’ strategic choices? I explore these questions through a field experiment in collaboration with Yelp across 3,218 businesses in the personal care industry, where treatment firms receive easily accessible information on their competitors’ prices. At baseline, over 46% of firms are not aware of their competitors’ prices. However, once firms receive this information, they are 17% more likely to change their prices, and do so by aligning their prices with competitor offerings. If competitor information is both decision-relevant and easily accessible, why had firms not invested in this information on their own? Evidence from interviews and a follow-up experiment across control firms suggests that managers appear to have underestimated the value of paying attention to competitor information. These findings suggest that managerial inattention may be a key barrier that leads firms to fail to realize gains from even readily accessible data.