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Price Delegation and Performance Pay: Evidence from Industrial Sales Forces

Author

Listed:
  • Desmond (Ho-Fu) Lo
  • Wouter Dessein
  • Mrinal Ghosh
  • Francine Lafontaine

Abstract

Delegation is a central feature of organizational design that theory suggests should be aligned with the intensity of incentives. We explore a specific form of delegation, namely price delegation, whereby firms allow sales people to offer a maximum discount from the list price to their customers. We develop a model of the price delegation decision based on information acquisition that relies on characteristics of our empirical context of industrial sales. Using data on individual sales people, one per firm from a survey of 261 firms, we show that, consistent with predictions from our model, sales people are given more pricing authority when they are more experienced and more capable, when there is less environmental uncertainty, and, to a lesser extent, when customer valuations for the product are more variable. Also consistent with our model, we show that price delegation is increasing in the intensity of incentives given to agents. (JEL D23, D82, L22, M52)

Suggested Citation

  • Desmond (Ho-Fu) Lo & Wouter Dessein & Mrinal Ghosh & Francine Lafontaine, 2016. "Price Delegation and Performance Pay: Evidence from Industrial Sales Forces," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 32(3), pages 508-544.
    • Handle: RePEc:oup:jleorg:v:32:y:2016:i:3:p:508-544.
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    File URL: http://hdl.handle.net/10.1093/jleo/eww003
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    Citations

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    Cited by:

    1. Ekinci, Emre & Theodoropoulos, Nikolaos, 2021. "Disagreement and informal delegation in organizations," International Journal of Industrial Organization, Elsevier, vol. 74(C).
    2. Bryan Hong & Lorenz Kueng & Mu-Jeung Yang, 2019. "Complementarity of Performance Pay and Task Allocation," Management Science, INFORMS, vol. 65(11), pages 5152-5170, November.
    3. Sandro Shelegia & Joshua Sherman, 2018. "Bargaining at Retail Stores: Evidence from Vienna," Economics Working Papers 1606, Department of Economics and Business, Universitat Pompeu Fabra.
    4. Emre Ekinci & Nikos Theodoropoulos, 2018. "Informal Delegation and Training," University of Cyprus Working Papers in Economics 02-2018, University of Cyprus Department of Economics.
    5. Marina Halac & Pierre Yared, 2016. "Commitment vs. Flexibility with Costly Verification," NBER Working Papers 22936, National Bureau of Economic Research, Inc.
    6. Emre Ekinci & Nikolaos Theodoropoulos, 2021. "Determinants of Delegation: Evidence from British Establishment Data," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 35(1), pages 50-67.
    7. Jason J Sandvik & Richard E Saouma & Nathan T Seegert & Christopher T Stanton, 2020. "Workplace Knowledge Flows," The Quarterly Journal of Economics, Oxford University Press, vol. 135(3), pages 1635-1680.
    8. Josef Falkinger & Michel A. Habib, 2021. "Managerial discretion and shareholder capital at risk," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(7-8), pages 1215-1245, July.
    9. Dessein, Wouter & Lo, Desmond (Ho-Fu) & Minami, Chieko, 2019. "Coordination and Organization Design: Theory and Micro-evidence," CEPR Discussion Papers 13938, C.E.P.R. Discussion Papers.
    10. Daniel Habermacher, 2022. "Authority and Specialization under Informational Interdependence," Working Papers 142, Red Nacional de Investigadores en Economía (RedNIE).
    11. Xiaoyang Li & Xuan Zhou, 2021. "Autonomy, incentive and trade: How does trade liberalisation reshape corporate decentralisation in China?," The World Economy, Wiley Blackwell, vol. 44(10), pages 3051-3069, October.
    12. 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.
    13. Sandro Shelegia & Joshua Sherman, 2022. "Bargaining at Retail Stores: Evidence from Vienna," Management Science, INFORMS, vol. 68(1), pages 27-36, January.
    14. 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.
    15. Long Gao, 2023. "Optimal Incentives for Salespeople with Learning Potential," Management Science, INFORMS, vol. 69(6), pages 3285-3296, June.
    16. James Wang, 2020. "Screening soft information: evidence from loan officers," RAND Journal of Economics, RAND Corporation, vol. 51(4), pages 1287-1322, December.
    17. Christos Bilanakos & John S. Heywood & John G. Sessions & Nikolaos Theodoropoulos, 2018. "Does Delegation Increase Worker Training?," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1089-1115, April.
    18. Asuyama, Yoko, 2020. "Delegation to workers across countries and industries: Interacting effects of social capital and coordination needs," International Journal of Industrial Organization, Elsevier, vol. 69(C).

    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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