... Kenton's colleagues at Thompson submitted the highest bid of $480/thousand, while Eire papers were a close second to West with a bid of $432/thousand. Since each division at Birch is judged independently on the basis of profit and return on investment, selecting the bid from West allows Northern to perform better than the Southern or Thompson divisions. The other offers at a higher price produce no incentives for Mr. Kenton, even if another selection would be better for the overall firm. The $480 Thompson bid is actually in the best interest of the firm. It may seem counter-intuitive that the firm actually benefits by paying a higher price, but accepting the Thompson bid results in cost savings of $192 to Birch Paper company because of the revenues of $112 to Southern for providing the liner and corrugating medium to Thompson and $80 from Thompson selling the corrugated box to Northern, which ...

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