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Abstract
Research on salesforce compensation contract has focused on contract design itself for a long time. However, how contract design influences both production and pricing decisions of a firm is still not explored. This paper attempts to fill this research gap and answer the following questions. If the market demand is not only controlled by salesperson's effort, but also by the firm's pricing decision, how does the private information possessed by the salesforce affect the firm's marketing and operational decisions? Specifically, under the environment of incomplete information, what are the joint optimal contract design, optimal quantity, and pricing decisions? How is the production/inventory quantity decision affected by other decisions? In this research, three scenarios (first best, pooling, and separating) are analysed and closed-form optimal solutions are obtained. Detailed numerical analyses are carried out to gain some further insights into the sensitivity of the optimal solution.
Acknowledgements
The authors are very thankful to the editor and the referees whose detailed reviews and suggestions helped improve this article. Dr. Yang is supported by National Natural Science Foundation of China (No. 71001086, No. 71331004 and No. 71471150) and Ministry of Education of Humanities and Social Sciences (Project 14XJC630008), Dr. Liao is supported by National Natural Science Foundation of China (No. 71302187 and No. 71331004), and Dr. Zhu is supported by the Ministry of Education of Humanities and Social Sciences (Project 13XJC630019).
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No potential conflict of interest was reported by the authors.
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Notes on contributors
Shilei Yang
Shilei Yang is a professor of operations management at Southwestern University of Finance and Economics, China. He received his PhD in operations management from Washington State University. His research interests involve supply chain management, interface between operations and other functional areas, and applied business modeling. His researches have been published in top field journals, such as Production and Operations Management, European Journal of Operational Research.
Xuan Zhao
Xuan Zhao holds a PhD in the joint fields of management science and logistics from the University of British Columbia. Since 2004, she has been with the School of Business and Economics, Wilfrid Laurier University, where she is currently an associate professor. Her research involves utilizing the tools of management science/operations research and economics to model, analyze and derive insights into problems in the areas of supply chain management, revenue management, inventory/production control, marketing/OM interfaces, green product development, and entrepreneurships.
Victor Shi
Dr. Victor Shi holds a PhD in operations management from Washington State University. Currently he is a tenured associate professor. His main research has been in the areas of supply chain management and management science.
Yi Liao
Yi Liao is an associate professor of operations management at the School of Business Administration, Southwestern University of Finance and Economics. He received his MS from University of Connecticut in 2005 and PhD from Drexel University in 2011. His expertise is in operations management with a focus on developing simple and effective policies for supply chains. His research has appeared in journals like OMEGA, IJPE.
Jing Zhu
Jing Zhu received his Master degree from the Chinese University of Hong Kong, China, in 2006 and PhD degree in operations management from McGill University, Canada, in 2012. His research interests include empirical operations management, supply management and mergers and acquisitions.