Sales Strategy in Transshipment Networks

Abstract

This paper discusses the decision to transship inventory in terms of salesman ability or experience. To the best of the authors knowledge, it is the first to characterize trade between retailers at this level of microeconomic detail. The primary transshipment market of interest is the automobile dealer trade network. This paper considers a simplified version of the model in Pairolero (2016). The two retailer version of this model removes the need to consider dense networks, and this paper provides a simpler yet sharper characterization of price relationships between trade and autarky. The primary result is that inexperienced salesmen should never offer the trade because of inability to extract enough buyer value. As the salesman gains experience through selling the models in stock, negotiating ability is likely to increase and thus the ability to extract buyer value in trade increases. Since higher negotiating ability in trade increases trade profitability, trade is more likely to be optimal for experienced salesmen. The results of this paper could be used to advise sale managers on the training of new salesmen.