Right, if both salespeople agreed to swap customers they could cooperate and improve the equilibrium. Standard Coase theorem reasoning applies. But as in many other real-world cases, that kind of enforceable agreement may not be feasible. (What if the salesmen don’t know each other? Or there’s 1000 firms instead of 2? Note that the salesmen have to know each other. They can’t just recommend the other firm’s products, because then they’re not worth hiring. They’re only worth hiring if they are recommending your own products when appropriate, and also being sent new customers from the other firm’s salesman.)
Broadly, I think this argument is a similar logic to “the two firms should merge”. It’ll work so long as it is efficient for the firms to merge. But merging (or agreeing on how to split the customers) may be inefficient for other reasons (e.g. the firms then also agree to charge monopolistic prices). If so it ought to be banned by a benevolent government, as indeed many countries do.
If everyone were fully, globally cooperative then we might be in the best of possible worlds, and might require neither group loyalty, nor firms, nor governments.
While the salespeople cannot unilaterally recommend other firms products, the firm as a whole can have a strategy of recommending the best product, and use that reputation to land more customers (the Miracle on 34th Street / Progressive insurance model)
It’s a hopeful story, but again I think this is a version of “in the best of all possible worlds”. Sure, if everybody is in a long-run repeated game, then anything can be an equilibrium, including all possible efficient outcomes. That might be possible sometimes, but we don’t see many firms pursuing a strategy of recommending their rivals’ products.
I frequently am allowed to leave shops without buying a product so atleast some baseline non-loyalty is around. “Neccesarily” is a possiblity claim so at that level inconvenient worlds are relevant.
If the situation is a long iteration game then the relevance of short iteration analyses can be questioned.
In theory a hyper-loyal seller might be tempted to give wrong change to a customer giving money in excess to agreed price. However in practise the PR fallout of trying to do anything like this is so great that they are forbidden from doing so on multiple levels. There are lots of situation where tribalism would be so abhorrent that we don’t even register it as a relevant possibility.
I don’t fully get why they need to know each other. The kind of norms that keep this behaviour up run much with “you would have done the same to me” which works to upkeep the situation if there indeed are other following similar principles but following the principles doesn’t check for their existence.
Should the firm choose to replace a recommender with a loyal seller then they are likely to also destroy other firms recommending customers to them. Then the caused sales can be more directly attributed to the seller but the total output remains the same.
I think you are implicitly arguing that firms should always split ie firms should fire people that are not known to be linked to a profit generation. But this runs the risk of cutting down and destroying profit generating processes that can’t be well attributed to be the cause of single actors. Part of the reason for the firm is that the employes can cooperate instead of competing against each other. So there are scenarios where competition is destructive. If the effect would be super mandatory then it would mean that two deparments of the same company would be forced to only play for their own benefit and the larger company trying to force them to cooperate would neccesarily fail. Splitting might be ineffective for other reasons so it is not an autorecommendation.
Right, if both salespeople agreed to swap customers they could cooperate and improve the equilibrium. Standard Coase theorem reasoning applies. But as in many other real-world cases, that kind of enforceable agreement may not be feasible. (What if the salesmen don’t know each other? Or there’s 1000 firms instead of 2? Note that the salesmen have to know each other. They can’t just recommend the other firm’s products, because then they’re not worth hiring. They’re only worth hiring if they are recommending your own products when appropriate, and also being sent new customers from the other firm’s salesman.)
Broadly, I think this argument is a similar logic to “the two firms should merge”. It’ll work so long as it is efficient for the firms to merge. But merging (or agreeing on how to split the customers) may be inefficient for other reasons (e.g. the firms then also agree to charge monopolistic prices). If so it ought to be banned by a benevolent government, as indeed many countries do.
If everyone were fully, globally cooperative then we might be in the best of possible worlds, and might require neither group loyalty, nor firms, nor governments.
While the salespeople cannot unilaterally recommend other firms products, the firm as a whole can have a strategy of recommending the best product, and use that reputation to land more customers (the Miracle on 34th Street / Progressive insurance model)
It’s a hopeful story, but again I think this is a version of “in the best of all possible worlds”. Sure, if everybody is in a long-run repeated game, then anything can be an equilibrium, including all possible efficient outcomes. That might be possible sometimes, but we don’t see many firms pursuing a strategy of recommending their rivals’ products.
I frequently am allowed to leave shops without buying a product so atleast some baseline non-loyalty is around. “Neccesarily” is a possiblity claim so at that level inconvenient worlds are relevant.
If the situation is a long iteration game then the relevance of short iteration analyses can be questioned.
In theory a hyper-loyal seller might be tempted to give wrong change to a customer giving money in excess to agreed price. However in practise the PR fallout of trying to do anything like this is so great that they are forbidden from doing so on multiple levels. There are lots of situation where tribalism would be so abhorrent that we don’t even register it as a relevant possibility.
I don’t fully get why they need to know each other. The kind of norms that keep this behaviour up run much with “you would have done the same to me” which works to upkeep the situation if there indeed are other following similar principles but following the principles doesn’t check for their existence.
Should the firm choose to replace a recommender with a loyal seller then they are likely to also destroy other firms recommending customers to them. Then the caused sales can be more directly attributed to the seller but the total output remains the same.
I think you are implicitly arguing that firms should always split ie firms should fire people that are not known to be linked to a profit generation. But this runs the risk of cutting down and destroying profit generating processes that can’t be well attributed to be the cause of single actors. Part of the reason for the firm is that the employes can cooperate instead of competing against each other. So there are scenarios where competition is destructive. If the effect would be super mandatory then it would mean that two deparments of the same company would be forced to only play for their own benefit and the larger company trying to force them to cooperate would neccesarily fail. Splitting might be ineffective for other reasons so it is not an autorecommendation.