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Parkleigh Pharmacy is a small department store in Rochester NY, specializing in upscale, expensive personal accessories like sunglasses, beauty aids,leather goods, and home decorations like crystal,china,table lamps. Kaufmann s is a large department store chain based in Pennsylvania with several stores in the Rochester area. Kaufmann s carries broader range of products and caters more to middle income consumers.

Salespeople at Parkleigh are paid a straight hourly wage it does mean no commisions. In addition, they are entitled to a 30 percent discount on anything they buy at the store. By contrast, salespeople at Kaufmann s are paid an hourly wage which means lower than the the hourly wage paid at Parkleigh, plus a commission of 5 percent on sales they make. They receive no discount on product the buy at Kaufmann s.

1. why do you think the compensation plan differ at the two firms? In particular why do you think Kaufmann s pays commission to salespeople, while Parkleigh does not? Why does Parkleigh offer employees discounts on purchases, while Kaufmann s does not?

2. Assume for the moment , that neither store pays sales commisssions. Parkleigh offers hourly wage plus the employee discount. Kaufmann s offers only an hourly wage. Do you expect Kaufmann s hourly wage to be higher or lower than Parkleigh s? why?

Microeconomics, Economics

  • Category:- Microeconomics
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