Quantity discount pricing model: an exact formulation and analysis

Abstract

In this paper we formulate and analyze the quantity discount pricing problem without the approximation that was earlier used by Monahan and Lee and Rosenblatt. Our exact analysis throws light on some important conceptual implications of the above approximation. The exact formulation also enables us to discuss the discounting problem separately from the view-points of seller, buyer and the total system. Specifically, we show that the optimal policy from the buyer's view-point should be the same as that from the system view-point; and that the optimal policies of the buyer and the seller need not be the same. In addition, we present procedures for computing the optimal policies for the above three cases.