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Pass-Through with Quantity Discounts:A New Edgeworth-Salinger Paradox

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  • Takanori ADACHI
  • Naoshi DOI

Abstract

We study cost pass-through under nonlinear pricing when a monopolistic seller offers a single good in two fixed package sizes to heterogeneous consumers. Building on the Edgeworth–Salinger paradox of taxation, we show that Edgeworth-type price responses can arise across package sizes of the same underlying product. A common increase in per-unit marginal cost may induce the seller to lower the per-unit price of the small package while raising that of the large package. Under multinomial logit demand, pass-through to the large package is analytically greater than pass-through to the small package. Numerical analysis shows that this ordering is remarkably robust to random-coefficient demand heterogeneity. Negative pass-through for the small package is quantitatively important and becomes substantially more likely as the difference between package sizes increases. Consumer sorting also matters: a more positive correlation between price sensitivity and preferences for larger packages increases the likelihood of negative pass-through for the small package and widens the pass-through gap across package sizes. Thus, nonlinear pricing can transform a common supply-side cost shock into sharply different price responses across quantities purchased, with potentially important implications for the distributional incidence of cost shocks.

Suggested Citation

  • Takanori ADACHI & Naoshi DOI, 2026. "Pass-Through with Quantity Discounts:A New Edgeworth-Salinger Paradox," Discussion papers e-26-002, Graduate School of Economics , Kyoto University.
  • Handle: RePEc:kue:epaper:e-26-002
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    References listed on IDEAS

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    Cited by:

    1. Takanori ADACHI, 2026. "Reversals in Per-Unit Pass-Through in a Screening Model of Monopolistic Nonlinear Pricing," Discussion papers e-26-004, Graduate School of Economics , Kyoto University.

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    Keywords

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    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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