Determination of supplier's optimal volume discount schedules for heterogeneous buyers with price sensitive demand

Although the volume discount problem has been studied in the realm of a single supplier and a single buyer, when demand is price sensitive, it is not well understood when a buyer has a group of independent and different buyers. The problem is analyzed as a Stackelberg game whereby the supplier acts as the leader and the buyers act as the followers. Based on the analysis of the buyer's response to a common volume discount schedule, a nonlinear programming is formulated and a heuristic is developed. It is shown that volume discounts is able to significantly stimulated demand. The supplier and the system's profits achieved by volume discounts are higher than quantity discounts, and coordination efficiency of volume discounts is nearly 100%.