Rajiv Lal

Retail Pricing and Advertising Strategies

The authors study pricing and advertising strategies of retailers competing for the demand of an assortment of goods. In a model where uninformed rational consumers decide where to buy each product, they find that firms advertise prices below marginal cost to attract consumers into the store and profit from other goods that consumers plan to buy at the store. Incorporating product-line decisions indicates that firms do not restrict their product assortment even when they make a loss on one of the goods. Finally, products with lower reservation prices are shown to be more natural candidates for loss-leader pricing. Copyright 1994 by University of Chicago Press.

Price Competition in Multimarket Duopolies

In this article, we analyze the pricing strategies of firms that compete for the demand of an assortment of goods in a complete information static framework. In particular, we model the competition between two symmetric firms in a market that consists of two types of consumers, each of which may buy one unit of both goods sold by the two firms. We show that all Nash equilibria are such that neither firm charges the same price for both goods. Interestingly, under certain conditions, the firms jointly price discriminate between the two types of consumers and may even achieve the same level of profits as if they maximized joint profits; for another set of conditions, the unique equilibrium is such that the price for one of the goods and the price for the bundle are the same as the price of the good in a standard Hotelling model with one good. Finally, we show that if these equilibria exist, both firms prefer to sell both goods rather than specialize in either one of them. These results are a direct consequence of the interplay between the multimarket rivalry and the existence of more than one market segment, as modelled in this article.

Salesforce compensation plans: An individual-level analysis

A series of recent analytic papers have investigated the issue of how to compensate a salesforce using either the agency theory paradigm or transaction cost analysis. Similarly other more descriptive investigations have led to practical guidelines for managing compensation plans. These two approaches are difficult to reconcile since there is no direct mapping between the more managerially relevant independent variables used in the descriptive literature and the more abstract variables used in the analytic frameworks. While several empirical studies have focused on the predictions of the analytical frameworks, in this paper we test the guidelines provided in the descriptive literature, as in Smyth. Our study is unique in that it uses cross-sectional data at the individual level in relating the effect of various independent variables to salesperson-specific compensation plans. Although our results support many of the guidelines suggested by Smyth, we do not find support for his guidelines that the proportion of incentive pay should decrease if the company places more reliance on advertising or if the company has a quality advantage over its competitors. We use the agency theory framework to rationalize our findings with respect to reliance on advertising and existence of quality advantage as it effects the proportion of incentive pay. Finally, we find support for a number of the agency and transaction cost analysis variables such as uncertainty and salesperson efficiency.

Future Store Technologies and Their Impact on Grocery Retailing

Around 2002, as a participant of MIT’s Auto-ID center, the METRO Group saw the need to test, prove, observe and experience the acceptance of RFID and other new technologies in a real-life environment. The objective was to find solutions entailing real advantages for both the retail industry and the consumers. In the short run, the focus was on technologies that can increase the effectiveness of logistic processes and make shopping easier and more convenient. Longer run objectives include setting standards for retailing that can scale on an international basis.

Exclusive Dealing and Price Promotions

The authors study retail price promotions and manufacturer trade deals in markets with exclusive dealing. They find that models that do not account for the existence of retailers overestimate the depth of promotions. The authors then compare the price promotions outcomes of markets with and without exclusive dealing. They also evaluate whether exclusive dealing can be an equilibrium outcome and find that, under certain conditions of the model, the equilibrium is for manufacturers to distribute through several retailers, even though their profits might end up lower than if each retailer carried only one product. Copyright 1996 by University of Chicago Press.