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

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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)

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.

Suggested Citation

  • Krishnan S. Anand & Ravi Aron, 2003. "Group Buying on the Web: A Comparison of Price-Discovery Mechanisms," Management Science, INFORMS, vol. 49(11), pages 1546-1562, November.
    • Handle: RePEc:inm:ormnsc:v:49:y:2003:i:11:p:1546-1562
    DOI: 10.1287/mnsc.49.11.1546.20582
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    References listed on IDEAS

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