Nonlinear Pricing
Armstrong reviews nonlinear pricing as a method of price discrimination, under both monopoly and oligopoly supply. The topics covered include when it is profitable to offer quantity discounts and bundle discounts, the connections between second-degree and third-degree price discrimination, the use of market demand functions to calculate nonlinear tariffs, the impact of consumers with bounded rationality, bundling arrangements between separate sellers, and the setting of prices for quality upgrades and add-on products. This publication cites the review for the unglamorous half of the bulk-buying story: quantity discounts are frequently profitable, which is why the heuristic that the larger pack is cheaper per unit exists and usually holds, and why its failures are the exception worth naming rather than the rule.
Armstrong reviews nonlinear pricing as a method of price discrimination, under both monopoly and oligopoly supply. The topics covered include when it is profitable to offer quantity discounts and bundle discounts, the connections between second-degree and third-degree price discrimination, the use of market demand functions to calculate nonlinear tariffs, the impact of consumers with bounded rationality, bundling arrangements between separate sellers, and the setting of prices for quality upgrades and add-on products. This publication cites the review for the unglamorous half of the bulk-buying story: quantity discounts are frequently profitable, which is why the heuristic that the larger pack is cheaper per unit exists and usually holds, and why its failures are the exception worth naming rather than the rule.
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Armstrong, M. (2016). 'Nonlinear pricing.' Annual Review of Economics, 8, 583-614. Examines when it is profitable to offer quantity discounts and bundle discounts, and the impact of consumers with bounded rationality. doi:10.1146/annurev-economics-080614-115650
Where we use it
- Why the Big Box Is Not the Cheap One, Why We Crave
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The link below was matched against the publisher's record on title, first author and year, and all three agree.
The source
https://doi.org/10.1146/annurev-economics-080614-115650
DOI: 10.1146/annurev-economics-080614-115650