Simultaneous improvement of supplier’s profit and buyer’s cost by utilizing quantity discount

The purpose of this paper is to analyse how the supplier can formulate the terms of a quantity-discount pricing schedule, assuming that the buyer always behaves optimally. Formulas are derived for price and order size which maximize (1) the economic gain of the supplier resultant from revising price and order size, (2) the gain of the buyer, and (3) the sum of the gains of both parties. It is suggested how the supplier can induce the buyer to a predetermined price and order-size level of mutual benefit by utilizing an all-unit and incremental quantity-discount system.