THE ECONOMICS OF NONLINEAR PRICING: EVIDENCE FROM AIRFARES AND GROCERY PRICES

Abstract

Quantity discounts, characterised by unit prices falling as the quantity purchased rises, are a proliferate phenomenon that finds root in the economics of packaging. This paper reviews the key economic foundations of nonlinear pricing, introduces new pricing data and conducts an empirical investigation into airfares and grocery prices, which are shown to exhibit quantity discounts of an identical order of magnitude. The constancy of the quantity discount across distinct markets hints at the existence of a common force underlying the determination of prices.