When a seller offers a volume discount to a buyer, the seller should eliminate arbitrage and cannibalization.
A) Consider the CPA classes at a bank and their pricing based on volume discounts. Also consider CPA classes offered to general public. Explain if/how arbitrage happens. Explain if/how cannibalization happens.
B) Consider a software licensed to multiple users at a single company and the licensing fee per user has a volume discount. Explain if/how arbitrage happens. Explain if/how cannibalization happens.
C) Consider a commercial building contractor who spends millions of dollars on buying galvanized pipe from a supplier. The supplier sells the galvanized pipes in high volumes to building contractors and in low volumes to repair companies. The contractor buys the pipes with a volume discount. Explain if/how arbitrage happens. Explain if/how cannibalization happens.
D) Consider the three contexts above. In which context arbitrage is more likely to happen? In which context cannibalization is more likely to happen?