The salesman pitches a product, quotes a price, after bargaining, you pay much lower than the quoted amount. So who determines prices — the salesperson or the owner? Edward P Lazear attempts to understand pricing behaviour to determine the amount of pricing discretion given to agents. The study reveals the three factors that determine a delegate pricing authority decision — the salesperson’s informational advantage, the owner’s higher cost of time and the difference between both their price incentives. The salesman tends to sell at a lower price lower to ensure high probability of sale, which can be remedied by paying them a fixed salary. Also, pricing is delegated to agents only when the owner caters in a competitive market and sells non-durables. While eliminating the incentive to distort price delegation, will it trump other aspects of performance motivation?
Title: The impatient salesperson and the delegation of pricing authority
Source: National Bureau of Economic Research
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