The optimal efforts for the generalist salesperson maximize this certainty equivalent: ( Keeping in mind that =, the expected sales are and The firm sets the salary so that the salesperson is indifferent between participating and taking the second best job (which has a certainty equivalent of 0). The salary is If the production cost per unit is zero, the profit in the second period with a generalist salesperson is firm’s Substituting expected sales and salary gives expected profits as a function of the prices and commission rate: ( The optimal second period prices are =; = ( p2EG p2NG , where . ( The optimal commission rate is . ( Notice that the prices in the second period depend upon the sales difference observed in period Δ 1. If the market potential 2E of returning period 2 larger (larger values of customers’ were Δ) the firm would charge a higher price. This adaptation due to the information gleaned in period 1 enhances profits in period 2. The commission also depends on If the market Δ. customers’ potential were larger, the commission rate would be higher. Essentially, the firm would do 2E two things: first, incentivize the agent to sell more and second, charge a higher price for its product thus gaining a significant advantage from the learned information. It is straightforward to obtain the optimal values for all other variable, and in the interest of readability these expressions are recorded in Table 2.
The optimal efforts for the generalist salesperson maximize this certainty equivalent: ( Keeping in mind that =, the expected sales are and The firm sets the salary so that the salesperson is indifferent between participating and taking the second best job (which has a certainty equivalent of 0). The salary is If the production cost per unit is zero, the firm’s profit in the second period with a generalist salesperson is Substituting expected sales and salary gives expected profits as a function of the prices and commission rate: ( The optimal second period prices are p2EG =; p2NG = , ( where . ( The optimal commission rate is . ( Notice that the prices in the second period depend upon the sales difference Δ observed in period 1. If the market potential 2E of returning period 2 customers’ were larger (larger values of Δ) the firm would charge a higher price. This adaptation due to the information gleaned in period 1 enhances profits in period 2. The commission also depends on Δ. If the customers’ market potential 2E were larger, the commission rate would be higher. Essentially, the firm would do two things: first, incentivize the agent to sell more and second, charge a higher price for its product thus gaining a significant advantage from the learned information. It is straightforward to obtain the optimal values for all other variable, and in the interest of readability these expressions are recorded in Table 2.