Optimal multiple-breakpoint quantity discount schedules for customers with heterogeneous demands: all-unit or incremental?

Rachel Chen and Lawrence Robinson

IISE Transactions, 2012, vol. 44, issue 3, 199-214

Abstract: The supplier's problem of designing a quantity discount schedule is much more complicated when she faces customers who vary in size. This article considers both all-unit and incremental discount schedules with multiple breakpoints that maximize the supplier's net savings. Specifically, we assume that the distribution of customers’ demand belongs to the general family of Bender's Pareto curves, which generalizes the well-known “80-20” rule from A-B-C inventory analysis. For any number of breakpoints, we prove that the supplier is at least as well off under the optimal incremental discount schedule as she would be under the optimal all-unit discount schedule. Numerical study shows that most of the savings can be captured by a modest number (five) of breakpoints and that the advantage of incremental schedules over all-unit schedules goes to zero as the number of breakpoints grows large.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://hdl.handle.net/10.1080/0740817X.2011.568038 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:uiiexx:v:44:y:2012:i:3:p:199-214

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/uiie20

DOI: 10.1080/0740817X.2011.568038

Access Statistics for this article

IISE Transactions is currently edited by Jianjun Shi

More articles in IISE Transactions from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().