Why does Parkleigh provide discounts and Kaufmann doesn’t?

This is for an economics class. Chapter 14: Structuring Compensation Plans Parkleigh Pharmacy is an upscale department store in Rochester, NY, that sells personal accessories and home decorations. Kaufmann’s is a departmental store based in Pennsylvania and has several stores in Rochester, NY. Kaufmann carries a broad range of products and caters to middle-class customers. A salesperson at Parkleigh is paid a straight hourly wage (e.g., no sales commission) and 30% discount from purchasing any product from Parkleigh’s store. A salesperson at Kaufmann gets an hourly wage lower than Parkleigh’s hourly wage but gets 5% commission on sales. However, the product salesperson buys from Kaufmann without a discount. Based on the above situation, answer the following questions: 1. Why does the compensation plan differ between the two firms? Explain why does Kaufmann pays sales commission, and Parkleigh doesn’t? Why does Parkleigh provide discounts and Kaufmann doesn’t? 2. Suppose neither of the firms pays sales commission. Parkleigh provides an hourly wage plus employee discount, and Kaufmann provides an hourly wage without any employee discount. Do you expect Kaufmann’s hourly wage to be higher or lower than Parkleigh’s? Why? 1

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