A firm hires an advertising agency to build an advertising campaign for its product. The firm proposes to compensate the advertising agency only if consumer response to this campaign is sufficiently high (say sales go up my more than 10%). Discuss the issues related to such a compensation mechanism - will the advertising agency accept such a contract? Why/Why not? How do the hierarchical models of advertising help with this issue?

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The compensation mechanism proposed by the firm where the advertising agency is only compensated if consumer response meets a certain threshold is kno... View the full answer