Determination of supplier´s optimal volume discount schedules for heterogeneous buyers with price sensitive demand

Although the volume discount problem has been studied in the realm of a single supplier and a single buyer, when demand is price sensitive, it is not well understood when a buyer has a group of independent and different buyers. The problem is analyzed as a Stackelberg game whereby the supplier acts as the leader and the buyers act as the followers. Based on the analysis of the buyer´s response to a common volume discount schedule, a nonlinear programming is formulated and a heuristic is developed. It is shown that volume discounts is able to significantly stimulated demand. The supplier and the system´s profits achieved by volume discounts are higher than quantity discounts, and coordination efficiency of volume discounts is nearly 100%.