Quantity Discounts, Manufacturer and Channel Profit Maximization: Impact of Retailer Heterogeneity

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Abstract

In this paper, we investigate if a manufacturer can simultaneously maximize own and channel profit with any quantity-based pricing policy, including a quantity-discount policy, when selling through heterogeneous retailers. We show that the manufacturer's best possible pricing policy, when retailers self-select quantities, is a quantity discount. However, this policy does not maximize channel profit. Driven by the manufacturer's inclination to reduce the quantity sold through a high-cost or low-demand retailer, this result holds whether or not retailers compete. We discuss implications of our analysis for the manufacturer.

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