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Side payments in marketing

Author

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  • Hauser, John R.
  • Simester, Duncan I.
  • Wernerfelt, Birger.

Abstract

Side payments, known politely as gainsharing and pejoratively as bribery, are prevalent in marketing. Indeed, many management schools have added ethics modules to their basic marketing courses to discuss these issues and there is much discussion of side payments in the literature (e.g., Adams 1995, Borrus [Borrus, Amy. 1995. A world of greased palms. (November 6) 36–38.], Mauro [Mauro, Paolo. 1997. Why worry about corruption? . Washington, D.C.], Mohl [Mohl, Bruce. 1996. Auto dealers color surveys to polish image: Buyer's say salesmen tamper with makers' questionnaires. (August 11) B1, B6.], Murphy [Murphy, Kate. 1995. Corporate gifts: What's naughty or nice. (December 11) 122.], Peterson [Peterson, Barbara S. 1996. Taxing question: Will the government make you pay for your next travel benefits? (February) 27–30.], and Rose-Ackerman [Rose-Ackerman, Susan. 1996. Bribes and gifts. , April 19–20. Yale University, New Haven, CT.]). We seek to provide insight with respect to one class of marketing side payments. We hope that our analyses clarify some of the issues and suggest how these side payments affect marketing activities. We begin by focusing on one common example of potential side payments—salesforce ratings of internal sales support. We derive two formal results and speculate on how these results generalize. The two results are (1) that having one group of employees rate another implies that there are almost always incentives for side payments, but (2) the side payments need not reduce the firm's profit. At least in theory, the firm is always able to revise the reward system to factor out these side payments. The first result, based on a straightforward proof, has important practical implications for managers who may wish to preclude side payments. They may be unable to design a ratings-based reward system that does not have inherent incentives for side payments. The second result, in our opinion, is quite surprising. It suggests that marketing managers might be
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Hauser, John R. & Simester, Duncan I. & Wernerfelt, Birger., 1997. "Side payments in marketing," Working papers 161-97. Working paper (Sl, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    • Handle: RePEc:mit:sloanp:2651
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    File URL: http://hdl.handle.net/1721.1/2651
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    1. Hauser, John R. & Simester, Duncan I. & Wernerfelt, Birger., 1995. "Internal customers and internal suppliers," Working papers 3759-95. WP (Internationa, Massachusetts Institute of Technology (MIT), Sloan School of Management.
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    Cited by:

    1. Shubhranshu Singh, 2017. "Competition in Corruptible Markets," Marketing Science, INFORMS, vol. 36(3), pages 361-381, May.
    2. Yuetao Gao & Yue Wu, 2023. "Regulating Probabilistic Selling of Counterfeits," Management Science, INFORMS, vol. 69(8), pages 4498-4517, August.
    3. Duncan Simester & Juanjuan Zhang, 2010. "Why Are Bad Products So Hard to Kill?," Management Science, INFORMS, vol. 56(7), pages 1161-1179, July.
    4. 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.
    5. Wernerfelt, Birger. & Simester, Duncan I. & Hauser, John R., 1997. "Influence transfers, performance, and performance ratings," Working papers 160-97. Working paper (Sl, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. Leigh McAlister, 2007. "—Cross-Brand Pass-Through: Fact or Artifact?," Marketing Science, INFORMS, vol. 26(6), pages 876-898, 11-12.

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    HD28 .M414 no.3950-97;

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