The Effects of Competition and Scarcity on Interpersonal Communication in Organizations

When an organization’s environment changes, communication between its members is essential for a timely response. However, past observational studies suggest that communication declines when an organization is exposed to an adverse environmental event. To understand why this might happen, I examine the effects of competition and scarcity—two common features of adverse events—on information sharing and seeking—the microfoundations of organizational communication. In the present study, interactive groups of experimental participants play a novel n-armed bandit game where they work as salespeople for companies that offer a lot of different products (The Sales Game). Some groups experience stable customer demand, while others are exposed to negative or positive demand shifts. Participants earn variable rewards based on their individual performance, and competition is induced in half of the groups through a small bonus based on relative performance. Participants can choose to exchange information with their peers throughout the task. When participants freely exchange information, the increase in individual performance-based rewards is larger than the tiny competitive bonus. But, participants exposed to this competition share information significantly less often than those who are not. This produces a pattern of communication network contraction consistent with prior observational studies of organizations exposed to adverse events. In contrast to prior research, scarcity (negative demand shifts) has no effect on information exchange. These findings advance our understanding of the relationship between competition, scarcity, and interpersonal communication in organizations. They also have important implications for the design of incentive schemes in modern firms. Funding: This research was supported by funds from the Chicago Booth Graduate School of Business and the Division of Social and Economic Sciences [Grant 2018173]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2023.18288 .