9 Pages Posted: 15 Apr 2016
Date Written: April 9, 2016
This paper examines a monopolist's optimal multi-tier quantity-discount pricing scheme. In the linear demand case, it derives a new formula for determining the optimal total output for any number of tiers. The formula yields a convenient graphical representation of the optimal pricing scheme. The paper shows that all tiers' outputs are equal, the last tier's price is always higher than the marginal cost, and the larger is the number of tiers, the larger are the total output, profits, and social welfare but the lower is the consumer surplus. In the non-linear demand case, the paper shows how the individual tier's output structure is affected by the curvature of the demand curve.
Suggested Citation: Suggested Citation
Chang, Winston W. and Chen, Tai-Liang, A Note on Second-Degree Price Discrimination: The Optimal Quantity-Discount Pricing Schedule (April 9, 2016). Available at SSRN: https://ssrn.com/abstract=2761904 or http://dx.doi.org/10.2139/ssrn.2761904