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- Title
The Effectiveness of Field Price Discretion: Empirical Evidence from Auto Lending.
- Authors
Phillips, Robert; Şimşek, A. Serdar; van Ryzin, Garrett
- Abstract
In many markets, it is common for headquarters to create a price list but grant local salespeople discretion to negotiate prices for individual transactions. How much (if any) pricing discretion headquarters should grant is a topic of debate within many firms. We investigate this issue using a unique data set from an indirect lender with local pricing discretion. We estimate that the local sales force adjusted prices in a way that improved profits by approximately 11% on average. A counterfactual analysis shows that using a centralized, data-driven pricing optimization system could improve profits even further, up to 20% over those actually realized. This suggests that centralized pricing--if appropriately optimized--can be more effective than field price discretion. We discuss the implications of these findings for auto lending and other industries with similar pricing processes.
- Subjects
PRICING; SALES force management; ENDOGENEITY (Econometrics); ECONOMETRICS; CONSUMER lending
- Publication
Management Science, 2015, Vol 61, Issue 8, p1741
- ISSN
0025-1909
- Publication type
Article
- DOI
10.1287/mnsc.2014.2084