Pricing strategy for deteriorating items using quantity discount when demand is price sensitive

This study develops an optimal pricing and ordering policy for a deteriorating item with price sensitive demand. Since it usually benefits the vendor more than the buyer when both the buyer and the vendor are integrated, a quantity discount pricing strategy is necessary to entice the buyer to accept the alliance. A negotiation factor is incorporated to balance the profit sharing between both players. Sensitivity analysis with the numerical example shows that the integrated total cost is very sensitive to the deterioration rate and the price-sensitive parameter. The analysis resulted in an increase in the total joint profit; therefore it is significant to consider the integrated vendor–buyer strategy with quantity discount.