Speaker(s): Krishnan Anand
(Wharton)
Title:
Abstract
Web-based Group-Buying mechanisms, a refinement of quantity discounting, are
being used for both Business-to-Business (B2B) and Business-to-Consumer (B2C)
transactions. In this paper, we survey currently operational online Group-Buying
markets, and then study this phenomenon using analytical models. We surveyed
over fifty active Group-Buying sites, and provide a comprehensive review of
Group-Buying practices in the B2B, B2C and non-profit sectors, across three
continents.
On the modeling side, we build on the coordination literature in Information
Economics and the quantity-discounts literature in Operations to develop an
analytical model of a monopolist who uses web-based Group-Buying mechanisms
under different kinds of demand uncertainty. We derive the monopolist's optimal
Group-Buying schedule, and compare his profits with those that obtain under the
more conventional posted-price mechanism. We also study the effect of
heterogeneity in the demand regimes, in combination with uncertainty, on the
relative performance of the two mechanisms. We further study the impact of the
timing of the pricing decision (vis-à-vis the production decision) by modeling
it as a two-stage game between the monopolist and buyers. Finally, we
investigate how Group-Buying schemes compare with posted price markets when
buyers can revise their prior valuation of products based on information
received from third parties (infomediaries).
In all cases, we characterize the conditions under which one mechanism
outperforms the other, and those under which the posted price and Group-Buy
mechanisms lead to identical seller revenues. Our results have implications for
firms' choice of price discovery mechanisms in electronic markets and scheduling
of production and pricing decisions in the presence (and absence) of scale
economies of production. (Joint work with Ravi Aron)