DISCOUNTING DECISIONS IN A SUPPLIER-BUYER RELATIONSHIP WITH A LINEAR BUYERS DEMAND

In this paper, we analyze disconting decisions for a supplier with a g roup of homogeneous customers. We focus on two aspects: the gaming nat ure of the discount problem and the demand consideration in the proces s. We use a general quantity discount schedule and start with the Stac kelberg equilibrium of the problem. It is shown that, for the seller t o gain from quantity discount, he has to set up his quantity discount schedule such that the buyer will order more than his EOQ. Both the se ller and the buyer can gain significantly from quantity discount. The incentive for discount is twofold: reducing inventory related cost and attracting more demand from the customers. In addition, quantity disc ount schedule can be very efficient in obtaining the maximum gain the seller and the buyer can possibly obtain together.