What is a trade discount?

According to the Accounting Tools website, trade discounts are provided to retailers by wholesalers for goods. The retailer can then charge the full manufacturer suggested retail price for the goods, using the discounted amount as profit.

Trade discounts are based either on a specific dollar amount or on a percentage of the cost of the product. The discount often grows larger as larger amounts of the product is purchased. When a wholesaler sells directly to the end customer, avoiding the retailer through the use of its own distribution channels, then the trade discount is usually dropped and the full manufacturer suggested retail price is charged instead.