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The optimal quantity discount that a supplier should offer

Author

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  • G Y Ke

    (University of Waterloo, Waterloo, Canada)

  • J H Bookbinder

    (University of Waterloo, Waterloo, Canada)

Abstract

Quantity discounts are a useful mechanism for coordination. Here we investigate such discounts from the supplier's perspective, both from a non-cooperative game-theoretical approach and a joint decision model. Taking into account the price elasticity of demand, this analysis aids a sole supplier in establishing an all-unit quantity discount policy in light of the buyer's best reaction. The Stackelberg equilibrium and Pareto optimal solution set are derived for the non-cooperative and joint-decision cases, respectively. Our research indicates that channel efficiency can be improved significantly if the quantity discount decision is made jointly rather than non-cooperatively. Moreover, we extend our model in three directions: (1) the product is transported by a private fleet; (2) the buyer may choose to offer her customers a different percentage discount than that she obtained from the supplier; and (3) the case of heterogeneous buyers. Numerical case studies are employed throughout the paper to illustrate the practical applications of the models presented and the sensitivity to model parameters.

Suggested Citation

  • G Y Ke & J H Bookbinder, 2012. "The optimal quantity discount that a supplier should offer," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 63(3), pages 354-367, March.
    • Handle: RePEc:pal:jorsoc:v:63:y:2012:i:3:p:354-367
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    Cited by:

    1. Ke, Ginger Y. & Bookbinder, James H., 2018. "Coordinating the discount policies for retailer, wholesaler, and less-than-truckload carrier under price-sensitive demand: A tri-level optimization approach," International Journal of Production Economics, Elsevier, vol. 196(C), pages 82-100.
    2. Beullens, Patrick, 2014. "Revisiting foundations in lot sizing—Connections between Harris, Crowther, Monahan, and Clark," International Journal of Production Economics, Elsevier, vol. 155(C), pages 68-81.
    3. Viktoryia Buhayenko & Sin C. Ho & Anders Thorstenson, 2018. "A variable neighborhood search heuristic for supply chain coordination using dynamic price discounts," EURO Journal on Transportation and Logistics, Springer;EURO - The Association of European Operational Research Societies, vol. 7(4), pages 363-385, December.

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