The impacts of sales efforts and mode of payment on the competition between agent and retailer

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We observe in practice that some manufacturers hire sales managers to boost the downstream sales of products. In this paper, we build a game-theoretical model to study the impacts of sales manager’s effort on a supply chain, which consists of a manufacturer, an agent, and a retailer. The agent in our model conducts both wholesale and retail businesses: the agent wholesales through the retailer, and also competes with the retailer in the retail market. Specifically, we study the following three modes: no sales manager mode, manufacturer-paid sales manager mode, and agent-paid sales manager mode. Among them, the mode with no sales manager is treated as the benchmark. We study and compare the equilibrium decisions and profits under the three modes, and find that the sales efforts and mode of payment have significant impacts. For example, we show that the agent’s equilibrium profit may first decrease and then increase in the sales manager’s effort cost. Interestingly, the sales efforts of the manufacturer-paid sales manager may hurt the agent and retailer due to the channel competition. Furthermore, compared to the manufacturer-paid sales manager mode, the profits of the manufacturer and the agent may be higher or lower under the agent-paid sales manager mode.