A Discount Price Schedule Based on Supplier's Profit Function

It is discussed how a supplier should design a quantity discount pricing schedule for multiple buyers. It is emphasized that nor only the supplier's surplus but also each buyer's surplus resultant from quantity discount should be considered in designing price schedule. It is shown that if the supplier's quantity pricing schedule is based on his/her profit function, each buyer's surplus may be maximized. And it is also shown that when the supplier's main benefit comes from the reduced number of setups, the incremental discount schedule satisfies the requirement. Formulas to determine values of parameters of the incremental discount schedule are provided.