Determination of suppliers' optimal quantity discount schedules with heterogeneous buyers

Although the quantity discount problem has been extensively studied in the realm of a single supplier and a single buyer, it is not well understood when a supplier has many different buyers. This paper presents an analysis of a supplier's quantity discount decision when there are many buyers with different demand and cost structures. A common discrete all-unit quantity discount schedule with many break points is used. After formulating the model, we first analyze buyers' responses to a general discrete quantity discount schedule. This analysis establishes a framework for a supplier to formulate his quantity discount decision. Under this framework, the supplier's optimal quantity discount schedule can be formulated and solved by a simple non-linear programming model. The applicability of the model is discussed with an application for a large U.S. distribution network.