All-units discounts in retail contracts

Kolay, Sreya, Shaffer, Greg and Ordover, Janusz A. (2004) All-units discounts in retail contracts. Journal of Economics and Management Strategy, 13 (3). pp. 429-459. ISSN 1530-9134

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Abstract

All-units discounts in retail contracts refer to discounts that lower a retailer's wholesale price on every unit purchased when the retailer's purchases equal or exceed some quantity threshold. These discounts pose a challenge to economic theory because it is difficult to understand why a manufacturer ever would charge less for a larger order if its intentions were benign. In this paper, we show that all-units discounts may profitably arise absent any exclusionary motive. All-units discounts eliminate double marginalization in a complete information setting, and they extract more profit than would a menu of two-part tariffs in the standard incomplete information setting with two types of buyers. All-units discounts may improve or may reduce welfare (relative to menus of two-part tariffs) depending on demand parameters.

Item Type:	Article
Faculty \ School:	Faculty of Social Sciences > Norwich Business School
UEA Research Groups:	Faculty of Social Sciences > Research Groups > Responsible Business Regulation Group
Depositing User:	Pure Connector
Date Deposited:	23 Sep 2016 23:32
Last Modified:	07 Mar 2023 10:31
URI:	https://ueaeprints.uea.ac.uk/id/eprint/59716
DOI:	10.1111/j.1430-9134.2004.00018.x

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