The Optimal Quantity Discount Policy from a Supplier's Perspective

Quantity discounts are often used by suppliers to influence the retailers' order quantities. The discounts provided determine for the supplier the decreased revenue from each sale as well as the increased quantity of each order. We develop a Stackelberg game to investigate the optimal quantity discount policy offered by the supplier and its impact on the retailer. It is shown that under certain conditions the optimal quantity discount policy determined from the supplier's perspective can benefit both the supplier and the retailer.