Title
Higher Prices for Larger Quantities? Nonmonotonic Price-Quantity Relations in B2B Markets
Abstract
AbstractWe 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.This paper was accepted by Serguei Netessine, operations management.
Year
DOI
Venue
2017
10.1287/mnsc.2016.2454
Periodicals
Keywords
Field
DocType
quantity discounts,bargaining,revenue management,data-driven
Revenue management,Economics,Microeconomics,Rationing,Negotiation
Journal
Volume
Issue
ISSN
63
7
0025-1909
Citations 
PageRank 
References 
0
0.34
6
Authors
3
Name
Order
Citations
PageRank
Wei Zhang183.87
Sriram Dasu214425.52
Reza H. Ahmadi313530.66