quantity discount

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Related to quantity discount: cash discount, trade discount

Quantity Discount

A lower price per unit a company charges in exchange for the purchase of a large number of units. For example, if the usual price for a product is $5 per unit and a buyer asks to purchase 10,000 units, the company may offer a quantity discount and only charge $3 per unit. Quantity discounts exist to encourage large orders, which, while they may reduce profit margin, increase revenue and therefore raw profit.

quantity discount

a price reduction from a supplier's LIST PRICE given to buyers of products according to the quantities that they purchase. Such BULK-BUYING discounts are often termed ‘trade discounts’, and they could be based on the size of a single order or could take the form of an AGGREGATED REBATE on the volume of cumulative purchases over a period of time. Quantity discounts are used both to secure orders against competitors and by encouraging larger, less frequent orders, to reduce the supplier's order and delivery cost.

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References in periodicals archive ?

As a consequence, it is not possible to draw any general conclusions regarding the social welfare effects of quantity discount contracts when they apply to interfirm transactions.

Specifically, we examine the use of single-product quantity discounts as both an exclusionary, anticompetitive strategy and an efficiency-promoting procompetitive weapon.

EXCLUSIONARY EFFECTS: QUANTITY DISCOUNTS AS A BARRIER TO ENTRY

In order to evaluate the effects of quantity discounts on entry, we consider the case where B has demand for two units of the input, with value $1 each.

EFFICIENCY EFFECTS: QUANTITY DISCOUNTS AS A COMPETITIVE WEAPON

The preceding section demonstrates that quantity discounts can retard efficient entry and thereby reduce social welfare.

Because these assumed conditions cannot be expected to hold in all instances in which quantity discounts are observed, however, the question that naturally arises at this point is: What are the competitive effects of quantity discounts likely to be under different market conditions?

To begin, it should be noted that quantity discounts are a form of price discrimination.

The competitive effects of quantity discounts

Suppliers throughout the state are well advised to carefully qualify their retail chain accounts to make sure that exact common legal ownership exists whenever group quantity discounts to all outlets in a group are given.

If retail outlets are simply affiliated, rather than being under exact common legal ownership, the pool buying provisions are the only mechanism available to obtain group quantity discounts for spirits products without running afoul of the price discrimination provisions of Section 25503(e) of the ABC Act.

Likewise, a chain of identified entities whose ABC licenses are actually held by different partnerships or different management companies (which is common in hotel, restaurant and convenience store accounts) cannot avail themselves of group quantity discounts based upon total product purchases by all outlets carrying the common identifier (such as the "chain" name or "dba").

Group discount pricing under scrutiny

Robinson-Patman rulings have often, without economic logic, held that quantity discounts somehow hurt competition, by confusing harm to competitors who are losing out to preferred suppliers with harm to the competitive process.