Abstract

In this paper, we study within firm heterogeneity in the discounts offered to consumers. Utilizing transaction level data from a large home appliance retailer, we quantify the extent of both across and within-salesperson heterogeneity in the discounts they negotiate with consumers. We find significant differences across salespeople in the discounts they offer: conditional on purchase, a consumer could realize a 15% higher discount by just negotiating with a different salesperson. We also find a significant effect of salesperson quotas on discounts, but as compared to across-salesperson heterogeneity, the impact of this within-salesperson heterogeneity is small. Using estimates from a structural demand model, we find that the retailer can realize 30% more profit, on average, by optimally allocating salespeople to consumers as compared to random allocation. This increase is economically significant given that a move from fixed pricing to bargaining (with random allocation) results in a 19% increase in profits. Further, strategic allocation based on consumer demographics, an implementable policy, captures about one-sixth of the total potential profit increase. We find that consumer welfare is lower under bargaining with strategic allocation, but it is not significantly different than under a fixed pricing mechanism. Together, these results suggest that, in addition to price discrimination through bargaining, the retailer can also price discriminate by matching salespeople to consumers.

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• Keyword(s):
• global business 164
• marketing 139

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