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Use prices as sales agents

Author

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  • Ren Wang
  • Jie Hou
  • Hui Song

Abstract

We use a monopoly model with consumer heterogeneity to study the profitability of group buying, in which the discounted price is offered to consumers if more than a certain number of them agree to make purchases. We find that group buying generally outperforms intertemporal pricing but is outperformed by a referral reward program. The optimal minimum requirement depends on parameters. If a consumer and her invitee have homogeneous preference and there is no discount of future utility, a pricing strategy characterized by the low (medium) minimum requirement is always dominated by high minimum requirement, whose profit coincides with one‐person group buying.

Suggested Citation

  • Ren Wang & Jie Hou & Hui Song, 2020. "Use prices as sales agents," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(7), pages 1349-1364, October.
    • Handle: RePEc:wly:mgtdec:v:41:y:2020:i:7:p:1349-1364
    DOI: 10.1002/mde.3180
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    References listed on IDEAS

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