An Approach for Developing an Optimal Discount Pricing Policy

Article Abstract:

This paper addresses the problem of why and how a seller should develop a discount pricing structure even if such a pricing structure does not alter ultimate demand. The situation modeled is most appropriate where the seller's product does not represent a major component of the buyer's final product, where the demand for the product is derived, or where the price is only one of many factors considered in making a purchase decision. A model of buyer reaction to any given pricing scheme is developed to show that there exists a unified pricing policy which motivates the buyer to increase its ordering quantity per order, thereby reducing the joint (buyer and seller) ordering and holding costs. As a result, the seller is able to reduce its costs while leaving the buyer no worse off and often better off. The model is extended to handle variable ordering and shipping costs and situations where the seller faces numerous groups of buyers, each having different ordering policies. Finally a case study is presented explicitly showing how the proposed pricing policy can be applied to the situation of a large seller selling to a number of different buyer groups. (Reprinted by Permission of Publisher.)

Management science, Models, Marketing Applications, Price, Case Study, Theory, Discount

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Tax-adjusted discount rates

Article Abstract:

Valuation of interest tax shields can be done by adjusting the discount rate in order to show the net interest tax shield interest, or by adding to the firm's all-equity-financed value the interest tax shield's present value. A model for discount rates is developed in which the discount rates are adjusted for an infra-marginal firm's tax shields in a general tax equilibrium. Certainty equivalents are calculated by a tax-adjusted riskless discount model under conditions in which the firm maintains a predetermined debt ratio, and expected cash flows are determined with a tax-and-risk adjusted model. Research indicates that risky and riskless tax shields are valued by the market to the extent that tax laws allow for the nonlinear taxation of gains and losses. A tax-adjusted discount rate should be used to discount interest tax shields in order to show that they accrue to investors.

Analysis, Measurement, Tax research, Tax shelters

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Cross-disciplinary evidence for hyperbolic social discount rates

Article Abstract:

A study was conducted to characterize the nature of social discount rates as hyperbolic wherein people view time as a relative phenomenon and that preference reversals are a normal component of human behavior. Several proofs were considered to examine the hyperbolic characteristic of social discount rates. These include empirical behaviorist, empirical economics and public choice evidences. A number of statistical aggregation concerns were also analyzed. Results indicated that the social discount rate is hyperbolic even if individuals discount exponentially. Findings also suggested the need to consider the structure of data obtained from individuals when carrying future empirical research on the nature of social discount rates.

Social aspects, Research, Cost benefit analysis

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