Group Buying on the Web: A Comparison of Price-Discovery Mechanisms

  • Anand K
  • Aron R
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Abstract

Web-basedgroup-buying mechanisms are being widely usedfor both business-to- business (B2B) andbusiness-to-consumer (B2C) transactions. We survey currently operational online group-buying markets, andthen study this phenomenon using analytical models. We buildon the literatures in information economics andoperations management in our analytical model of a monopolist offering Web-based group-buying under different kinds of demand uncertainty. We derive the monopolist’s optimal group-buying schedule under varying conditions of heterogeneity in the demand regimes, and compare its profits with those that obtain under the more conventional posted-price mechanism. We further study the impact of production postponement by endogenizing the timing of the pricing and production decisions in a two-stage game between the monopolist and buyers. Our results have implications for firms’ choice of price-discovery mechanisms in e-markets, and for the scheduling of production and pricing decisions in the presence (and absence) of scale economies of production.

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Authors

  • Krishnan S. Anand

  • Ravi Aron

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