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2005 Documento de Trabajo #216

Sunk Prices And Salesforce Competition

This work analyses those industries in which the role of salespersons is to poach clients from rival firms. This is done with a three-stage model where firms decide successively if they enter the market or not, what price to set, and how many salespersons they hire. It is assumed that each consumer is obliged to contract a service unit, but can do so with any firm. The firms can freely choose the price, but must charge same rates to all clients. Under these assumptions it is shown that the possibility of poaching rivals’ clients reduces the intensity of price competition.

Classification JEL: L10.

Alejandro Corvalán
Pablo Serra

Keywords: competition., price rigidity, salesforce