Pricing and Packaging: The Case of Marijuana

In many markets unit prices decline as the quantity purchased rises, a phenomenon which can be considered to be part of the economics of packaging. For example, in Australia marijuana costs as much as 80 percent less if purchased in the form of ounces rather than grams. This paper reviews the economic foundations of quantity discounts and proposes new ways of measuring and analysing them. These ideas are implemented with the prices of marijuana, a product that is shown to be priced in a manner not too different to that used for groceries and other illicit drugs. In broad terms, the results support the following pricing rule: The unit price falls by 2.5 percent when the product size increases by 10 percent.