Analyzing the Nike Inc. & Converse Agency Theory Relationship

This report examines the agency relationship between Nike Inc. and its subsidiary, Converse, focusing on the issue of increased market retail prices for the collaborative Converse Chuck Taylor All Stars product. The problem arose when Nike, acting as the principal, resold the Chuck Taylor range at revamped, higher prices, creating an agency problem with Converse, the agent. The report suggests resolving the issue through mutual agreement on price reduction to satisfy customer preferences. It also notes that shifting product placement to other regions would not inherently solve the problem, as pricing concerns would persist globally. The analysis is supported by references to relevant academic literature on agency theory and international business.

Topic 2: Agency Theory
Relationship Issues between Nike Inc.
and its Subsidiary organization
Converse

Topic 2: Agency Theory
• Relationship Issue between Nike Inc. and Converse
– Situation : Increase in Market Retail Price for the collaborative product Converse Chuck Taylor
All Stars
• Status quo: The problem started with the organization of Converse since the previous
Chucks consignment was lower in price but the principal and agent collaboration hiked
the price at an expensive level.
• Converse Inc., Country: Malden, Massachusetts, USA. Subsidiary of Nike Inc. Industry:
Retail, especially shoe manufacturers. Key financial figures: Davide Grasso,
C.E.O and president, Market share: 1.89 billion U.S. dollars in 2017-2018
• How Nike Inc. and Converse Inc. have an Agency Relationship within the
issue
– Converse Inc. used to sell the Chuck Taylor range by itself. However, they agreed to allow Nike
Inc. to resale the product with revamped prices. This made Converse the agent and Nike the
principal, thus forming an agency relationship (Bosse & Phillips, 2016).
– Agency problem rose since Nike sold the old product with increased prices.
• Resolving the agency problem
– The agency problem could only be resolved if the agency and principal both agreed on the
reduction of the price as per the liking of the customers.
• Foreseeing the problem shifting to any other country
– If the entire product placement is shifted to the other parts of the world, the problem would
still be the same since the other part of the world would not accept the brands over the
costing of the product (Castonguay & Lasserre, 2016).

References
Bosse, D. A., & Phillips, R. A. (2016). Agency
theory and bounded self-interest. Academy of
Management Review, 41(2), 276-297.
Castonguay, F., & Lasserre, P. (2016). Resource
Agency Relationship with Privately Known
Exploration and Extraction Costs (No. 2016s-
56). CIRANO.