On Salesforce Compensation with Inventory Considerations

This study critically examines Dai and Jerath's (2013) influential paper on incentive schemes in inventory management, revealing a substantial flaw: an equilibrium fails to exist for a broad set of parameters allowed by the paper. Illustrated through a specific example, we identify fundamental economic reasons behind this issue and propose discretization as a solution. Addressing the non existence problem reshapes key findings, clarifying and correcting counterintuitive notions the author had highlighted in the paper. This resolution ensures that inventory considerations no longer impact compensation, while preserving the informational value crucial to incentive schemes.