Commissions and Sales Targets Under Competition

Guillermo Gallego () and Masoud Talebian ()
Additional contact information
Guillermo Gallego: Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027
Masoud Talebian: School of Mathematics, University of Newcastle, Callaghan, New South Wales 2038, Australia

Management Science, 2014, vol. 60, issue 9, 2180-2197

Abstract: We consider a game between two capacity providers that compete for customers through a broker who earns commissions on sales and sells to both loyal and nonloyal customers. The providers compete by selecting commission margins and sales targets above which the margins on total sales increase. We study the contract form in equilibrium and the effect that sales targets have on the profit split between the providers and the broker. We show that in equilibrium, contracts require positive sales targets that can be best described as a mechanism for the larger provider to profit at the expense of the smaller provider. The effect of sales targets is different when commission margins are exogenous and the providers compete by setting targets. In this case, it is the low-margin provider who benefits from sales targets at the expense of the broker, who in this context resists the imposition of targets. This paper was accepted by Yossi Aviv, operations management .

Keywords: provider--broker competition; contract theory; quantity discount; game theory (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2013.1885 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:60:y:2014:i:9:p:2180-2197

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().