Price Delegation with Learning Agents

• DOI: 10.1287/mnsc.2023.4939
• Publication Date: 2023-10-25T12:38:50Z
• Authors: Atalay Atasu; Dragos Florin Ciocan; Antoine Désir
• Keywords: Delegate; Delegation

Many firms delegate pricing decisions to sales agents that directly interact with customers. A premise behind this practice is can gather informative signals about the customer’s valuation for good of interest. The information acquired through interaction customer then be used make better decisions. We study underlying principal-agent problem arises in such situations. In setting, agent exert costly effort learn a and decide on price quote customer, whereas firm needs offer contract induce its desired joint learning behavior. analyze two versions problem: base model where there single good, generalization are multiple customers limited inventory good. For both problems, we find family contracts whose payoffs approach first-best arbitrarily closely even if has liability, is, garners nonnegative payments all states world, shed light structure implementation contracts. Under reasonable assumptions, these implemented commissions convex increasing revenues up some cap. These continue perform well under practical adjustments as revenue-sharing structure. This paper was accepted by Itai Ashlagi, revenue management market analytics. Supplemental Material: e-companion data available at https://doi.org/10.1287/mnsc.2023.4939 .