What effect does a quantity discount generally have on purchase decisions?

A quantity discount generally encourages bulk buying because it provides financial incentives for buyers to purchase larger amounts of a product. This pricing strategy makes it more attractive for customers to buy more at once, as the overall cost per unit decreases with larger quantities purchased. This purchase behavior can lead to several operational benefits, such as lower costs over time, improved cash flow management, and often a more reliable supply chain for the buyer.

In contrast, the other options do not accurately reflect the primary effect of quantity discounts. For instance, while bulk buying might influence inventory decisions, it does not inherently discourage inventory holding, since buying in large quantities can actually lead to an increase in inventory levels. The idea of reducing supplier competition is also not connected to the concept of quantity discounts; instead, this practice may have the opposite effect by encouraging buyers to evaluate multiple suppliers based on the incentives they offer. Lastly, shipping costs typically don't increase due to quantity discounts; buyers often benefit from economies of scale, which can even reduce shipping costs per unit when purchasing in larger quantities.