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Rankings Impede Profitable Joint Ventures

6/9/2006 --

Study shows that highly ranked rivals are less willing to collaborate even if it means higher profits.

ANN ARBOR, Mich.—Whether it's Apple against Dell, Michigan vs. Ohio State or the Ross School and Wharton, rivalries are all about competition.

Recent research from Ross School of Business professors, however, reveals that ranking information can have a powerful impact on the intensity of such rivalries. Rivals become less willing to maximize joint gains when highly ranked than when intermediately ranked.

"Our results suggest that people with high rankings are less willing to cooperate with each other, even when such collaborations have the potential to maximize profit," said Stephen Garcia, adjunct assistant professor of management and organizations at the Ross School and assistant professor at U-M's Ford School of Public Policy.

A sample of 572 U-M students and full-time employees in the Ross School's evening MBA program participated in one of eight simulations.

In one simulation, for example, participants imagined being the chief executive officer of a Fortune 500 company and decided whether to enter a lucrative joint venture with a rival company. If they entered the joint venture, their profits would increase by 6 percent and their rival's by 6 percent. If they did not, their profits would only increase by 5 percent and their rival's by 1 percent.

Results showed that when both companies were highly ranked (e.g., No. 3 and No. 4) on the Fortune 500, only 39 percent of the participants chose to enter the profitable joint venture. However, 79 percent entered the lucrative joint venture when their company and rival were intermediately ranked (e.g., No. 103 and No. 104).

In another simulation, people imagined being the head of a nonprofit organization and simply expressed how competitive they would feel toward a rival nonprofit. People reported harboring more competitive feelings toward a rival nonprofit if both of them were highly ranked (e.g., No. 9 and No. 10) than intermediately ranked (e.g., No. 209 and No. 210).

Richard Gonzalez, professor of marketing at the Ross School and U-M professor of psychology, emphasizes that people are randomly assigned to different rankings and that "these ranking effects are likely even more dramatic in the real world, where highly ranked people will tend to be competitive by nature."

In today's ranking culture, this study shows how rankings can ironically prevent progress on the performance dimensions they seek to improve, he said.

The study is published in the July issue of Personality and Social Psychology Bulletin.



For more information, contact:
Bernie DeGroat
Phone: (734) 936-1015 or 647-1847
E-mail: bernied@umich.edu