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Price versus Quantity Monitoring

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  • Ramarao Desiraju

    (University of Central Florida)

Abstract

In an adverse selection context, this article explores the relative usefulness of price information over quantity information. The main finding is that price monitoring can induce a sales level that is greater than the full-information sales level. This imposes additional selling costs on the agent and reduces that agent's rents. The analysis identifies sufficient conditions for the principal to prefer price monitoring over quantity monitoring. Business-format franchises exhibit many of the features of the setting analyzed here, and the article's findings have implications for designing information systems in that sector of the economy.

Suggested Citation

  • Ramarao Desiraju, 2006. "Price versus Quantity Monitoring," The Journal of Business, University of Chicago Press, vol. 79(5), pages 2361-2380, September.
  • Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:5:p:2361-2380
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    File URL: http://dx.doi.org/10.1086/505238
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    References listed on IDEAS

    as
    1. Clements, Kenneth W., 2004. "Three facts about marijuana prices," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(2), June.
    2. Clements, Kenneth W & Izan, H Y, 1987. "The Measurement of Inflation: A Stochastic Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(3), pages 339-350, July.
    3. Gerstner, Eitan & Hess, James D, 1987. "Why Do Hot Dogs Come in Packs of 10 and Buns in 8s or 12s? A Demand-Side Investigation," The Journal of Business, University of Chicago Press, vol. 60(4), pages 491-517, October.
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    Cited by:

    1. Pavan Rao Chennamaneni & Ramarao Desiraju, 2011. "Comarketing Alliances: Should You Contract on Actions or Outcomes?," Management Science, INFORMS, vol. 57(4), pages 752-762, April.

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