In many markets, it is common for headquarters to create a price list but grant local salespeople discretion to negotiate prices for individual transactions. How much if any pricing discretion headquarters should grant is a topic of debate within many firms. We investigate this issue using a unique data set from an indirect lender with local pricing discretion. We estimate that the local sales force adjusted prices in a way that improved profits by approximately 11% on average. A counterfactual analysis shows that using a centralized, data-driven pricing optimization system could improve profits even further, up to 20% over those actually realized. This suggests that centralized pricing-if appropriately optimized-can be more effective than field price discretion. We discuss the implications of these findings for auto lending and other industries with similar pricing processes.#R##N##R##N#This paper was accepted by Serguei Netessine, operations management.
['Robert Phillips', 'A. Serdar Şimşek', 'Garrett J. van Ryzin']
The Effectiveness of Field Price Discretion: Empirical Evidence from Auto Lending