A. Serdar Simsek

Research

• Publications
  
  

  • The Effectiveness of Field Price Discretion: Empirical Evidence from Auto Lending (with R. Phillips and G. van Ryzin).
    
    Abstract
    In many markets, it is common for headquarters to create a price list while giving local salespeople discretion to negotiate prices for individual transactions. How much (if any) pricing discretion headquarters should grant is a topic of controversy within many firms. We investigate this issue using a unique data set from an indirect lender with local pricing discretion. We find strong evidence that, on average, the indirect sales force adjusted prices in a way that improved profits by approximately 11%. However, we also show that using a centralized, data-driven pricing optimization system has the potential to improve profits even further, up to 20%. This suggests that centralized pricing policies — if implemented appropriately — is an effective way of price discrimination. We discuss the implications of these findings for auto lending and for other industries with similar pricing structures.