| This dissertation consists of a game-theoretic model in which the managerial practice of delegating the pricing decision to the salesforce is examined in a competitive, information symmetric environment. Bhardwaj (2001) shows that price delegation constitutes the game's equilibrium as long as price competition is sufficiently intense. However, his paper analyzes the price delegation issue with reduced-form demand equations. More specifically, his demand specification uses a single parameter to capture product substitutability and category attractiveness. Given the issues associated with reduced-form demand equations (Staelin 2001), I start from first principles to investigate how product substitutability and cross effort responsiveness affect the decision to delegate.;In addition, this dissertation puts forth the first experimental test of price delegation. Only one empirical study exists in the price delegation literature, Stephenson, Cron and Frazier (1979). They conclude that firms with high pricing authority underperform on several performance measures. Unfortunately, their findings are limited since their survey methodology suffers from response bias, endogeneity and measurement error. As a result, I conduct an empirical test that utilizes the experimental economics methodology to appropriately test the theory. This methodology eliminates the aforementioned concerns and presents three distinct advantages: First, the experimenter has complete laboratory control over the demand conditions. Second, the decisions of the participants are incentive aligned (Ding 2007). Third, the nature of the strategic interaction between firms, sales reps and competitors can be further examined. Under the proposed setting, I empirically assess whether delegating the pricing decision to the salesforce actually arises as an equilibrium strategy. |
