Technical Note—Delegating Pricing Responsibility to the Salesforce

In this paper, we use an agency theory framework to address the issue of delegating pricing responsibility to the salesperson. In this analysis, it is shown that delegating the pricing responsibility to the salesperson is as profitable as centralization when the salesperson and the sales manager have identical information about the selling environment; but delegation may be more profitable when the saleperson's information is superior to that of the sales manager's. It is also argued that this characteristic is typical of market conditions where we observe delegation of such responsibility in cases identified by Weinberg (Weinberg, C. B. 1975. An optimal commission plan for salesman's control over price. (8, April) 937–943.) and Stephenson, Cron and Frazier (Stephenson, P. R., W. L. Cron, G. Frazier. 1979. Delegating pricing authority to the salesforce: The effects on sales and profit performance. (April) 21–28.).