Working Paper: NBER ID: w20529
Authors: Edward P. Lazear
Abstract: Sales agents are impatient relative to owners. If a good fails to sell, the owner still retains possession of that good and can enjoy its services, whereas the agent receives nothing. As a consequence, sales agents prefer a lower price than does an owner. Owners are therefore reluctant to delegate pricing authority to sales agents even when the agents have superior market information. Pricing authority is more likely to be delegated to agents when the owner lacks monopoly power and sells competitively and when the good is a non-durable. Agents who are given pricing authority are less likely to be paid commissions and more likely to be on a straight salary.
Keywords: pricing authority; sales agents; delegation; market structure; incentives
JEL Codes: D4; M5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lack of ownership (H13) | lower prices set by agents (L11) |
| market structure (D49) | likelihood of delegation of pricing authority (L11) |
| compensation structures (M52) | delegation of pricing authority (D49) |