Compensation plan for competing salespersons under asymmetric information

We investigate the optimal compensation scheme involving one firm and two competing salespersons deployed in different territories under asymmetric information. The problem is analyzed using a two-stage game. In the first stage, the firm announces the compensation plans. The two salespersons, who are closer to customers, have superior market information and then simultaneously but independently decide which plans to sign. The firm decides the production quantity and the salespersons independently make effort decisions. In the second stage, sales volumes are realized and the associate payments are made. With a quota-based plan, in this paper we derive the salespersons' optimal responses and fully characterize the firm's optimal strategy. We also investigate the impacts of both the quota level and the intensity of competition. The results suggest that a higher quota level is advantageous to the firm but disadvantageous to the salespersons. Furthermore, the firm's expected profit and the salespersons' profits may not decrease monotonically with the intensity of competition. (C) 2013 Elsevier B.V. All rights reserved.