Discrete pricing and consumer utility

We introduce and present a simple treatment of discrete pricing, a nonlinear pricing strategy that entails successive discrete price adjustments, triggered by corresponding purchase quantity thresholds. When the price adjustments are discounts, consumer utility may not necessarily increase with discrete pricing as compared to conventional pricing, depending upon the positions of the quantity thresholds and magnitudes of price discounts. We introduce the concepts of material and economic waste and highlight how the positions of the quantity thresholds affect consumer choices, utility, and the potential level of waste. Discrete pricing results in economic waste – unrealized utility – whenever consumers find it optimal to choose the binding minimum quantity required to obtain the price discount.