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An Optimal Commission Plan for Salesmen's Control Over Price

Author

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  • Charles B. Weinberg

    (Stanford University)

Abstract

If marginal costs are constant, salesman who are paid a commission based on gross margin and who are given control over price will set prices so as to maximize simultaneously their own income and the company's profits. The result holds even if a salesman can only make a probabilistic estimate of sales.

Suggested Citation

  • Charles B. Weinberg, 1975. "An Optimal Commission Plan for Salesmen's Control Over Price," Management Science, INFORMS, vol. 21(8), pages 937-943, April.
    • Handle: RePEc:inm:ormnsc:v:21:y:1975:i:8:p:937-943
    DOI: 10.1287/mnsc.21.8.937
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    Citations

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    Cited by:

    1. Bicheng Yang & Tat Chan & Raphael Thomadsen, 2019. "A Salesforce-Driven Model of Consumer Choice," Marketing Science, INFORMS, vol. 38(5), pages 871-887, September.
    2. Duncan Simester & Juanjuan Zhang, 2014. "Why Do Salespeople Spend So Much Time Lobbying for Low Prices?," Marketing Science, INFORMS, vol. 33(6), pages 796-808, November.
    3. Robert Phillips & A. Serdar Şimşek & Garrett van Ryzin, 2015. "The Effectiveness of Field Price Discretion: Empirical Evidence from Auto Lending," Management Science, INFORMS, vol. 61(8), pages 1741-1759, August.
    4. Noah Lim & Sung H. Ham, 2014. "Relationship Organization and Price Delegation: An Experimental Study," Management Science, INFORMS, vol. 60(3), pages 586-605, March.
    5. Frenzen, Heiko & Hansen, Ann-Kristin & Krafft, Manfred & Mantrala, Murali K. & Schmidt, Simone, 2010. "Delegation of pricing authority to the sales force: An agency-theoretic perspective of its determinants and impact on performance," International Journal of Research in Marketing, Elsevier, vol. 27(1), pages 58-68.
    6. Fangruo Chen, 2000. "Sales-Force Incentives and Inventory Management," Manufacturing & Service Operations Management, INFORMS, vol. 2(2), pages 186-202, February.
    7. Albers, Sonke, 1996. "Optimization models for salesforce compensation," European Journal of Operational Research, Elsevier, vol. 89(1), pages 1-17, February.
    8. Chung, Doug J. & Kim, Byungyeon & Syam, Niladri B., 2020. "A Practical Approach to Sales Compensation: What Do We Know Now? What Should We Know in the Future?," Foundations and Trends(R) in Marketing, now publishers, vol. 11(1), pages 1-52, June.
    9. Dai, Yue & Chao, Xiuli, 2016. "Price delegation and salesforce contract design with asymmetric risk aversion coefficient of sales agents," International Journal of Production Economics, Elsevier, vol. 172(C), pages 31-42.
    10. Pradeep Bhardwaj, 2001. "Delegating Pricing Decisions," Marketing Science, INFORMS, vol. 20(2), pages 143-169, September.
    11. Wilken, Robert & Cornelißen, Markus & Backhaus, Klaus & Schmitz, Christian, 2010. "Steering sales reps through cost information: An investigation into the black box of cognitive references and negotiation behavior," International Journal of Research in Marketing, Elsevier, vol. 27(1), pages 69-82.
    12. Abou Nabout, Nadia & Skiera, Bernd & Stepanchuk, Tanja & Gerstmeier, Eva, 2012. "An analysis of the profitability of fee-based compensation plans for search engine marketing," International Journal of Research in Marketing, Elsevier, vol. 29(1), pages 68-80.
    13. Birendra K. Mishra & Ashutosh Prasad, 2004. "Centralized Pricing Versus Delegating Pricing to the Salesforce Under Information Asymmetry," Marketing Science, INFORMS, vol. 23(1), pages 21-27, January.
    14. Jian Chen & He Huang & Liming Liu & Hongyan Xu, 2021. "Price Delegation or Not? The Effect of Heterogeneous Sales Agents," Production and Operations Management, Production and Operations Management Society, vol. 30(5), pages 1350-1364, May.
    15. Sandro Shelegia & Joshua Sherman, 2022. "Bargaining at Retail Stores: Evidence from Vienna," Management Science, INFORMS, vol. 68(1), pages 27-36, January.
    16. Matthias Kräkel & Anja Schöttner, 2020. "Delegating Pricing Authority to Sales Agents: The Impact of Kickbacks," Management Science, INFORMS, vol. 66(6), pages 2686-2705, June.
    17. Sridhar Balasubramanian & Pradeep Bhardwaj, 2004. "When Not All Conflict Is Bad: Manufacturing-Marketing Conflict and Strategic Incentive Design," Management Science, INFORMS, vol. 50(4), pages 489-502, April.
    18. Hans Gersbach, 1998. "On the Equivalence of General and Specific Control in Organizations," Management Science, INFORMS, vol. 44(5), pages 730-737, May.
    19. Sascha Alavi & Johannes Habel & Paolo Guenzi & Jan Wieseke, 2018. "The role of leadership in salespeople’s price negotiation behavior," Journal of the Academy of Marketing Science, Springer, vol. 46(4), pages 703-724, July.
    20. Gabrielsen, Tommy Staahl & Roth, Stefan, 2009. "Delegated bargaining in distribution channels," Australasian marketing journal, Elsevier, vol. 17(3), pages 133-141.
    21. Birendra K. Mishra & Ashutosh Prasad, 2005. "Delegating Pricing Decisions in Competitive Markets with Symmetric and Asymmetric Information," Marketing Science, INFORMS, vol. 24(3), pages 490-497, March.
    22. Przemysław Jeziorski & Elena Krasnokutskaya & Olivia Ceccarini, 2019. "Skimming from the Bottom: Empirical Evidence of Adverse Selection When Poaching Customers," Marketing Science, INFORMS, vol. 38(4), pages 543-566, July.
    23. Bharadwaj Kadiyala & Robert Phillips & A. Serdar Şimşek & Garrett van Ryzin, 2023. "Predicting transaction outcomes under customized pricing with discretion: A structural estimation approach," Production and Operations Management, Production and Operations Management Society, vol. 32(6), pages 1654-1673, June.

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