ABSTRACT

This chapter distinguishes between linear (or uniform) and nonlinear pricing. It then describes several forms of nonlinear pricing. Quantity discounts as a form of nonlinear pricing are very popular and important. Product-line pricing involves a collection of several similar products that may vary by package size, color, quality, version, and so forth. The chapter focuses on Big Data, because the model estimations use historical transactions data on quantities bought and the associated prices. Disaggregated data reflecting the heterogeneity of consumers are needed to construct a demand profile. The chapter explains a spline regression model and also discusses elasticity measurement. Elasticity estimation is more complex for market data that are already based on quantity discounts because of discontinuities in the data due to changes in the price points. The models listed for the elasticity estimation can be estimated using R functions.