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Pricing and Packaging: The Case of Marijuana

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  • Kenneth W. Clements

    (UWA Business School, The University of Western Australia)

Abstract

In many markets unit prices decline as the quantity purchased rises, a phenomenon which can be considered to be part of the economics of packaging. For example, in Australia marijuana costs as much as 80 percent less if purchased in the form of ounces rather than grams. This paper reviews the economic foundations of quantity discounts and proposes new ways of measuring and analysing them. These ideas are implemented with the prices of marijuana, a product that is shown to be priced in a manner not too different to that used for groceries and other illicit drugs. In broad terms, the results support the following pricing rule: The unit price falls by 2.5 percent when the product size increases by 10 percent.

Suggested Citation

  • Kenneth W. Clements, 2004. "Pricing and Packaging: The Case of Marijuana," Economics Discussion / Working Papers 04-03, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:04-03
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    File URL: https://ecompapers.biz.uwa.edu.au/paper/PDF%20of%20Discussion%20Papers/2004/04_03_Clements.pdf
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    References listed on IDEAS

    as
    1. Gerstner, Eitan & Hess, James D, 1987. "Why Do Hot Dogs Come in Packs of 10 and Buns in 8s or 12s? A Demand-Side Investigation," The Journal of Business, University of Chicago Press, vol. 60(4), pages 491-517, October.
    2. Clements, Kenneth W., 2004. "Three facts about marijuana prices," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(2), pages 1-30.
    3. Clements, Kenneth W & Izan, H Y, 1987. "The Measurement of Inflation: A Stochastic Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(3), pages 339-350, July.
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    Cited by:

    1. Kevin J. Fox & Daniel Melser, 2014. "Non-Linear Pricing and Price Indexes: Evidence and Implications from Scanner Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(2), pages 261-278, June.
    2. Červený, Jakub & van Ours, Jan C., 2019. "Cannabis prices on the dark web," European Economic Review, Elsevier, vol. 120(C).
    3. Ben Lakhdar, Christian & Leleu, Hervé & Vaillant, Nicolas Gérard & Wolff, François-Charles, 2013. "Efficiency of purchasing and selling agents in markets with quality uncertainty: The case of illicit drug transactions," European Journal of Operational Research, Elsevier, vol. 226(3), pages 646-657.
    4. Clements, Kenneth W. & Mariano, Marc Jim M. & Verikios, George & Wong, Berwyn, 2022. "How elastic is alcohol consumption?," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 568-581.
    5. Susan E Pen, 2012. "Quality-Constant Illicit Drug Prices," Economics Discussion / Working Papers 12-22, The University of Western Australia, Department of Economics.
    6. Liana Jacobi & Michelle Sovinsky, 2012. "Marijuana on main street: What if?," ECON - Working Papers 087, Department of Economics - University of Zurich.

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