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Relationship Organization and Price Delegation: An Experimental Study

Author

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  • Noah Lim

    (Wisconsin School of Business, University of Wisconsin--Madison, Madison, Wisconsin 53706)

  • Sung H. Ham

    (School of Business, George Washington University, Washington, DC 20052)

Abstract

Price delegation to the salesforce is a practice widely adopted by firms. This paper examines the relationship between price delegation and managerial profits using a laboratory economics experiment. A novel feature of our experiment is that we study how varying the relationship organization of the sales manager and salesperson to allow for (1) requests by the salesperson for the manager to choose price delegation, and for (2) the manager to award a small bonus after observing the salesperson's decisions, can affect behavior. The results show that, contrary to the theoretical prediction, managers choose price delegation frequently and salespeople respond reciprocally, leading to higher manager profits under price delegation. Moreover, this behavior increases when requests and bonuses are allowed. We show that a behavioral economics model that incorporates positive reciprocity can explain these results well.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2013.1778 . This paper was accepted by Pradeep Chintagunta, marketing.

Suggested Citation

  • Noah Lim & Sung H. Ham, 2014. "Relationship Organization and Price Delegation: An Experimental Study," Management Science, INFORMS, vol. 60(3), pages 586-605, March.
    • Handle: RePEc:inm:ormnsc:v:60:y:2014:i:3:p:586-605
    DOI: 10.1287/mnsc.2013.1778
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    References listed on IDEAS

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    5. Sandro Shelegia & Joshua Sherman, 2022. "Bargaining at Retail Stores: Evidence from Vienna," Management Science, INFORMS, vol. 68(1), pages 27-36, January.
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    7. Li, Xiaolin & Özer, Özalp & Subramanian, Upender, 2022. "Are we strategically naïve or guided by trust and trustworthiness in cheap-talk communication?," LSE Research Online Documents on Economics 107103, London School of Economics and Political Science, LSE Library.
    8. 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.
    9. Sung H. Ham & Ingrid Koch & Noah Lim & Jiabin Wu, 2021. "Conflict of Interest in Third-Party Reviews: An Experimental Study," Management Science, INFORMS, vol. 67(12), pages 7535-7559, December.

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