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Discrete pricing and consumer utility

Author

Listed:
  • Edward Osei

    (Tarleton State University)

Abstract

We introduce and present a simple treatment of discrete pricing, a nonlinear pricing strategy that entails successive discrete price adjustments, triggered by corresponding purchase quantity thresholds. When the price adjustments are discounts, consumer utility may not necessarily increase with discrete pricing as compared to conventional pricing, depending upon the positions of the quantity thresholds and magnitudes of price discounts. We introduce the concepts of material and economic waste and highlight how the positions of the quantity thresholds affect consumer choices, utility, and the potential level of waste. Discrete pricing results in economic waste – unrealized utility – whenever consumers find it optimal to choose the binding minimum quantity required to obtain the price discount.

Suggested Citation

  • Edward Osei, 2024. "Discrete pricing and consumer utility," Economics Bulletin, AccessEcon, vol. 44(3), pages 1123-1131.
    • Handle: RePEc:ebl:ecbull:eb-24-00249
    as

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    References listed on IDEAS

    as
    1. Ordover, Janusz A & Panzar, John C, 1982. "On the Nonlinear Pricing of Inputs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 659-675, October.
    2. , & ,, 2014. "Regular prices and sales," Theoretical Economics, Econometric Society, vol. 9(1), January.
    3. Ye, Lixin & Zhang, Chenglin, 2017. "Monopolistic nonlinear pricing with consumer entry," Theoretical Economics, Econometric Society, vol. 12(1), January.
    4. Viswanathan, S. & Wang, Qinan, 2003. "Discount pricing decisions in distribution channels with price-sensitive demand," European Journal of Operational Research, Elsevier, vol. 149(3), pages 571-587, September.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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