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Quantity Discounts, Manufacturer and Channel Profit Maximization: Impact of Retailer Heterogeneity
Authors:Subramanian Balachander  Kannan Srinivasan
Institution:(1) Graduate School of Management, Clark University, 950 Main Street, Worcester, MA, 01610;(2) Graduate School of Industrial Administration, Carnegie Mellon University, USA
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.
Keywords:Quantity Discount  Channel Coordination  Hybrid Marketing Channels  Pricing
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