The Influence of Competitors on Decision Making: Comparative Studies of Reference Groups

This dissertation explores puzzles around the relationship between uncertainty and the choice of reference groups used in decision making, with an emphasis on the influence, role, and composition of reference groups. The three empirical studies collectively investigate the following research questions: Does uncertainty reinforce or attenuate the influence of reference groups on decision making? How do organizations form and change their reference groups and how does their influence on decision making thereby change accordingly? Can the accumulated influence of reference groups cause shifts in the entire network structures? The first article examines how the composition of a reference group changes with the level of market price uncertainty by studying how gas stations alter their daily gasoline prices in response to their competitors. This article inspects the geographic range, size, and diversity of the set of competitors who are being observed and benchmarked by a focal actor. Estimates are computed of the influence of competitors' price decisions on a given gas station's future pricing. I discovered that with growing price uncertainty, the size (the number of members and geographical radius) of the reference group expands, pricing strategy becomes more uniform, but the composition becomes more diverse (in terms of gas brand, area size). The findings emphasize that as markets grow increasingly unpredictable, competitors tend to rely more on each other's strategies, resulting in enhanced uniformity of tactics, primarily driven by high-priced major brand gas stations. I also found as a general trend that the effect of the reference group on price decisions is greater in wealthier neighborhoods. The second article analyzes the reference groups that companies use in setting the level of CEO compensation. I explore how uncertainty changes the composition of reference groups and how much the gap between focal firms and their reference groups varies depending on their market status. This study revealed three key findings. First, when market uncertainty is high, compensation levels tend to become more similar, while the size of the reference group and other performance evaluation criteria remain unaffected. In contrast, high organization-specific uncertainty intensifies the status discrepancy within reference groups, increasing the distance between the subject company and its peers. Second, with respect to measures of market status, there is a U-shaped relationship between a firm’s status and the status gap between the firm and its reference group: low-status companies make comparisons upward, while high-status companies make downward comparisons. Lastly, reference groups serve more as justification for decisions rather than providing decision-making information. The composition of reference groups varies based on status position, explaining the limited variation in executive compensation levels despite differing business situations. The discovery that the composition of the reference group varies based on status position contributes to the existing literature on social status and reputation. While the first two articles focus on the competitor's impact on the choice of reference group actors, the third article explores how peer pressure from competitors contributes to changes at the societal level. By studying the choice of Preferential Trade Agreement (PTA) partners among countries, this article examines how much an actor's partnership decision is influenced by its rivals' decisions depending on the level of trade uncertainty, and how this has shaped the overall trend of globalization. Three crucial insights emerged from this study. First, competitor pressures have a threshold effect, with the probability of a new PTA significantly decreasing once this threshold is reached. Second, the interplay between uncertainty and regional competitor pressure varied across the two different periods studied: during Globalization, increased uncertainty was associated with higher probabilities of new PTA signings, but during “Slobalization” (following the economic crisis of 2008), increased uncertainty correlated with significantly lower probabilities of new PTA signings, especially amid low regional competitor pressure. Finally, it was found that uncertainty fostered new PTAs in the Globalization period, yet led to a diminishing of the PTA network under Slobalization. In conclusion, this dissertation provides systematic analyses of the role, influence, and composition of reference groups in decision-making. The ultimate goal is to provide a theoretical framework on reference groups based on data-driven findings. Additionally, this dissertation contributes to resolving a puzzle in the field of decision-making and social learning. It evaluates the conflicting assumptions about social learning (the "more uncertainty, more mimicry" hypothesis vs. the "more uncertainty, less adoption" hypothesis) and delves into when, where, and how much a given degree of uncertainty affects the degree of observational learning behavior exhibited among competitors. The findings in this dissertation contribute to clarifying the scope conditions of different models, thus providing an integrative understanding of how rivals develop a social structure without direct interaction or regulation.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

doctoral

Discipline thesis:degree_discipline

Graduate College

Grantor dc:publisher

The University of Arizona.

Year dc:date.issued

2023

Author dc:creator

• Yoon, Eunsung

Advisors dc:contributor.advisor

• Galaskiewicz, Joseph
• Breiger, Ronald

Committee member dc:contributor.committeemember

• Bethard, Steven

• Benchmarking
• Decision-making
• Longitudinal Network Analysis
• Organizational Learning
• Reference Group
• Uncertainty

Statement dc:rights

• Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction, presentation (such as public display or performance) of protected items is prohibited except with permission of the author.

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Language dc:language.iso

en

Handle dc:identifier.uri

http://hdl.handle.net/10150/669795

OAI identifier oai:identifier

oai:repository.arizona.edu:10150/669795