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

Krishnan S. Anand () and Ravi Aron ()
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Krishnan S. Anand: Operations and Information Management Department, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104
Ravi Aron: Operations and Information Management Department, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104

Management Science, 2003, vol. 49, issue 11, 1546-1562

Abstract: Web-based group-buying mechanisms are being widely used for both business-to-business (B2B) and business-to-consumer (B2C) transactions. We survey currently operational online group-buying markets, and then study this phenomenon using analytical models. We build on the literatures in information economics and operations 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.

Keywords: Group Buying; Pricing; Demand Uncertainty; Quantity Discounts; Price Discovery; Demand Heterogeneity (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (88)

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