Why Do Sales People Spend So Much Time Lobbying for Low Prices?

Abstract

In business-to-business settings a company’s sales force often spends considerable time lobbying internally for authorization to charge lower prices. These internal lobbying activities are time consuming, and divert attention from other tasks, such as interacting with customers. We explain why the sales force’s internal lobbying activities serve an important role. They help the firm elicit truthful reporting of demand information from the sales force. As a result, it may be profitable for the firm to require lobbying (and make the requirement onerous), even though lobbying is a nonproductive activity that creates an additional administrative burden and imposes a deadweight loss.

Keywords: lobbying, influence activities, sales force management, pricing, agency theory, incentives, information elicitation, marketing-sales interface

JEL Classification: D82, D83, L14, L23, M12, M52