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Market-Based Solutions to Vital Economic Issues


Market-Based Solutions to Vital Economic Issues
Jul 19, 2017

Within and Across Salesperson Heterogeneity in Negotiated Prices


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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