This website uses cookies to ensure you have the best experience. Learn more

The Xyz Co. Is Hiring Salespersons. Due To The Existence Of Asymmetric Information, The Firm Has Decided To Pay The Salespersons A Fixed Hourly Rate That Is Independent Of How Much They Sell Or Their Ability To Sell

2744 words - 11 pages

Q2:The XYZ Co. is hiring salespersons. Due to the existence of asymmetric information, the firm has decided to pay the salespersons a fixed hourly rate that is independent of how much they sell or their ability to sell. Explain what type(s) of asymmetric information problem(s) may take place and how can they be addressed. You are expected to illustrate your answer using relevant diagrams and/ or equations.

ECN256
ASYMMETRIC INFORMATION
ECN256
ASYMMETRIC INFORMATION
Salespersons, being boundary spanners between the organization and customers, play a critical role in enhancing customer satisfaction in order to maintain the buyer–seller relationship in situations involving service ...view middle of the document...

In a firm, information is an essential key player and today, it’s creating many exciting opportunities for both businesses and individuals. With information, firms can work hand in hand, know the welfare of their customers, identify opportunities, make better decisions and spot threats. However, a firm that has an imperfect knowledge about the labour market, employment, goods and service is said to be under Asymmetric information. firm xyz.co hired a salesperson and pays a fixed hourly rate that is independent of how much they sell or their ability. All of those are due to asymmetric information either on the labour market or the market its self.
According to George Herbert (1651) “the buyer needs a hundred eyes, the seller not one”. Asymmetric information is a situation in which buyers and sellers are not equally well informed about the characteristics of goods and services for sale in the market place i.e imperfect knowledge when one side of the market has better information than the other.
In many cases of asymmetric information, the less informed side knows that other side has more information given the awareness; the less-informed side of the deal may be able to make references from the informed side’s action. The informed party may engage in opportunistic behaviour: taking advantage of someone when circumstances permit.
Opportunistic behaviour due to asymmetric information can lead to market failures, destroying many desirable properties of competitive markets. There is perfect information in a competitive market and consumers can buy anything they desire at its marginal cost. Therefore, firms that have the information that consumers lack, may sell only the lowest-quality good, and the price may be above marginal cost. Market failure is eliminated if consumers can inexpensively determine the quality of a product or learn that various stores change.
When consumers have asymmetric information and when search costs and the number of firms are large, single-price equilibrium in a competitive market occurs where the price is the price a monopoly would set. If there is zero search cost, then in the presence of asymmetric information, competitive firms will charge the competitive price. As long as there is asymmetric information among consumers and positive search cost, if price is below the monopoly price and the same across all firms, then a competitive firm can profit from raising its price but by no more than the search cost.
As noted earlier, asymmetric information leads to problems of opportunism, where by the informed person benefits at the expense of the person with less information. There are two asymmetric information problems that may take place due to the firms hiring of a salesperson and been paid a fixed hourly rate that is independent of how much they sell or their ability to sell. They are;
- ) Adverse selection. - ) Moral Hazard
Adverse selection; can be defined as when products of different qualities are sold at...

Other Papers Like The Xyz Co. Is Hiring Salespersons. Due to the Existence of Asymmetric Information, the Firm Has Decided to Pay the Salespersons a Fixed Hourly Rate That Is Independent of How Much They Sell or Their Ability to Sell

A Manufacturing Company Is Thinking of Launching a New Product. the Company Expects to Sell $950,000 of the New Product in the First Year and $1,500,000 Each Year Thereafter. Direct Costs Will Be 45%...

706 words - 3 pages A manufacturing company is thinking of launching a new product. The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 45% of sales. Indirect incremental costs are estimated at $95,000 a year. The project requires a new plant that will cost a total of $1,500,000, which will be a depreciated straight line over the next 5 years. The new

Many Experts Argue That People Do Their Best Work When They Are Motivated by a Sense of Purpose Rather Than the Pursuit of Money. Do You Agree? Critically Evaluate and Explain Your Position

1928 words - 8 pages purpose is quintessential in keeping a knowledge worker satisfied and motivated to give their best. There are many factors that have been discussed on what drives workers to deliver their best work; the pursuit of money or a sense of purpose. Both of these motivating factors work tremendously well in promoting best work from workers but only if they are applied in the right job. In the case of manual workers, much of their motivation to work

Entrepreneurship Is the Ability to Develop

706 words - 3 pages that entrepreneurship is a good career , 60 % believe that they have the suitable skills and knowledge to start their own business 42 % intend to start their own business in the future , in 2012 , 1.4 million nascent entrepreneurs were trying to start 727,000 new enterprises , the lowest business discontinuation rates in Egypt compared to the other economic factors in 2012 with a rate of 5.28 % , moreover 40 % of egyptian discontinued businesses

To Gloss, or Not to Gloss, That is the Question –

1205 words - 5 pages speak out against the authority that is placed upon the men in fourteenth century England whether or not they accept the idea of being subservient to men both in the domestic sphere and the religious sphere. Chaucer, in one of his tales, slips a strong willed and powerful female villainess but is she really a villain or merely a fierce, independent woman willing to stand outside of the social standards that dictate what is feminine and what is not

To Entertain or to Learn? That Is the Question

1139 words - 5 pages To Entertain or to Learn? That is the Question. In her essay, “Thinking Outside the Idiot Box,” published in Slate on March 25,2005, Dana Stevens argues against what Johnson has to say about how television makes us smarter. Stevens explains how television is just a way for Americans to become overly obsessed with shows that have no value to the way our brains work. She wants her readers to know that television is just a form of

TO (blank) or not to (blank) that is the question

592 words - 3 pages To jump or not to jump that is the question,So what if it's a transgressionI would rather burn in hellAt least then it will be without choice that I sufferI could leave this treacherous place,Which makes me think of deathAnd continue to a place of tortureYet I don't know if there is such a placeSo it is when life turns to the worstThat I decide to place my bets that there will be no such placeOr should I wait this anger, pain and suffering outIs

The Company Has Participated in Reverse Discrimination with the Downsizing of 25% of the White Males Just to Be in Compliance with a Diversity Policy from Hr (Discrimination in Discharge Due to Sex)....

868 words - 4 pages operations" to their insurance coverage. She did file two complaints for Jackie missing too much work during part of that process when Jackie missed 3 months of work in a row. She and Paul have both emphatically denied that they are having an affair. The company has just learned that their competitor has "broken the code" of the secret formula and is now marketing a "new and improved" version of the "now passé" Lemon Tree formula. The whole thing

How to Sell Yourself in Unilever

1524 words - 7 pages get involved? * How did your experience/skills/offering fit in with what was required overall? * What feedback did they give you? * How valuable was your help do you think? Point of question: tests initiative, tenacity, drive to achieve goals, ability to identify good opportunities. DON’T: * Limit yourself to work-based scenarios. This is a very open question, so try to think laterally. * Repeat your answer to the idea-based

An Exerpt From The Book "Down To Earth Sociology" It Explains How The Existence Of Poverty Is Benefical To The Affluent In American Society

807 words - 4 pages The Uses Of Poverty: The Poor Pay AllHerbert J. GansThere is much more to poverty than having to "tighten your belt". In fact, sociologists that have studied the poor have found that they are faced with such dangerous and damaging social conditions that within their subculture there is a higher divorce rate, more frequent health problems, a higher rate of school dropouts, and a higher rate of crime.As sad and horrible as this may seem, poverty

The Effects of Homelessness in Children on Their Ability to Be Successful in Their Adult Life

1285 words - 6 pages The Effects of Homelessness in Children on Their Ability to be Successful in Their Adult Life Much research has been done in the past two decades analyzing homelessness among children, as well as homeless women expecting children. These studies show that there are many factors of homelessness that affect children ranging from the earliest stages of development to their later teen years into adulthood. This study will focus on the direct

The Ability to Think

809 words - 4 pages Critical Thinking Humanities ability to think critically has enabled us to secure a spot at the top of the food chain, but where has our thinking lead us since then? The opposable thumb is not the only characteristic that separates humans from the rest of the animal kingdom; our greatest ability is to think about thinking, by analyzing, assessing, and reconstructing our thoughts in order to achieve goals. Critical thinking is self-directed

Related Essays

Osmosis And Potato Chip Invetigation. To Determine The Effect That Varying Salt Concentration, In A Solution, Has Upon The Osmotic Ability Of Potato Chips Of A Given Size

2429 words - 10 pages Osmosis InvestigationAims and ObjectivesTo determine the effect that varying salt concentration, in a solution, has upon the osmotic ability of potato chips of a given size.Scientific Background KnowledgePut simply osmosis is defined as the net movement of water molecules, across a selectively permeable membrane, from a dilute to a concentrated solution.It is a special form of diffusion because it can only involve water molecules. However, it is

1. It Has Been Claimed That Social Welfare Is Not About Promoting The Recipients’ Wellbeing But About Promoting Their Compliance With Particular Standards Of Behaviour. Critically Discuss This Claim...

1731 words - 7 pages job opportunities are available and our entrenched culture of welfare dependency has meant that certain members of our community are not only prepared, but feel entitled to exploit the social safety net instead (Newman 1999). At the time, parenting payment, which is a social security payment paid by the Australian Government, was payable to either sole or partnered parents, provided they were the primary care giver of a child aged between zero and

Using Old Resources In New Ways: Taman Dayaks Owe Their Existence To Carefully Nurtured Resources, But They Have To Adapt If They Want To Survive

2489 words - 10 pages large lizards and pick different types of fruits, ferns and leaves from the forest to give their meals better flavour and variation. Due to their location on the plains, they are also able to fish in the rivers or in the nearby lakes formed by old river beds. Crocodiles are a thing of the past River crocodiles were once plentiful, but have been almost hunted out, making the main river safe for bathing. In the past, the Tamans also needed to fence

How Does The Advert "In The Nick Of Time" Sell Its Product To A Specific Target Audience?

1179 words - 5 pages How does the advert "In The Nick of Time" sell its product to a specific target audience?I am going to write about the car advertisement entitled " In The Nick of Time" and explain how it sells its product to a specific target audience.The storyline of this advertisement is reasonably simple. A man receives an urgent phone call. He rushes off to get his son and they drive off in their gleaming Audi through the night. When they arrive they enter