Higher Prices for Larger Quantities? Nonmonotonic Price–Quantity Relations in B2B Markets

Wei Zhang (), Sriram Dasu () and Reza Ahmadi ()
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Wei Zhang: Faculty of Business and Economics, University of Hong Kong, Hong Kong SAR, China
Sriram Dasu: Marshall School of Business, University of Southern California, Los Angeles, California 90089
Reza Ahmadi: Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095

Management Science, 2017, vol. 63, issue 7, 2108-2126

Abstract: We study a microprocessor company selling short-life-cycle products to a set of buyers that includes large consumer electronic goods manufacturers. The seller has a limited capacity for each product and negotiates with each buyer for the price. Our analysis of their sales data reveals that larger purchases do not always result in bigger discounts. Instead, the discount curve is like an “N.” While existing theories cannot explain this nonmonotonic pattern, we develop an analytical model and show that the nonmonotonicity is rooted in how sellers value capacity when negotiating with a buyer. Large buyers accelerate the selling process and small buyers are helpful in consuming the residual capacity. However, satisfying midsized buyers may be costly because supplying these buyers can make it difficult to utilize the remaining capacity, which is often too much for small buyers but not enough for large buyers. We briefly discuss the implications for capacity rationing and posted pricing as well as potential applications to other industries.

Keywords: quantity discounts; bargaining; revenue management; data-driven (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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