Selling Platforms
نویسندگان
چکیده
Network goods and platform-enabled marketplaces are a dominant part of industry and entrepreneurship today. Firms selling these products task selling agents to recruit network participants. This creates a novel agency problem, distinct from one encountered with traditional goods because of externalities created by network effects. We analyze this managerial problem within a principal-agent framework, aiming to understand the impact of network effects on compensation design and also to identify new insights regarding compensation strategies for network and platform goods. Our analyses articulate a spectrum of ways in which these externalities influence the optimal design of compensation plans, depending on whether network effects are direct or indirect and on what metrics are used to determine performance incentives. For instance, for network goods, an increase in the intensity of network effects should increase the agent’s share of the firm’s total revenues, but a smaller fraction should be paid as incentive-based payments. The firm’s net profit always increases as direct network effects increase, but profit levels for a platform can decrease as cross platform effects increase. Overall, the salesforce effort is strategically more important when selling network and platform goods than when selling traditional goods as sellers of such goods should dedicate a higher share of revenues to salesforce compensation.
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