Optimal decisions for fixed-price group-buying business originated in China: a game theoretic perspective

Abstract

In this paper, we study a new group-buying mechanism originated in China where the new mechanism adopts a fixed group price rather than a dynamic pricing mechanism. We employ a sensitive parameter , reflecting the initial customer’s seeking and communication cost and formulate this new group-buying business as a game model. First, we formulate the basic model as a Stackelberg game where the website is the leader and the seller is the follower. Our result shows that the group-buying mechanism is more efficient when the value of is smaller, and there is also an upper bound for to adopt group-buying mechanism. Second, we establish three other group-buying game structures by considering different market power between the website and the seller. By comparing the maximum revenues and optimal decisions obtained under different market structures, some interesting and valuable managerial insights are established such that when to adopt a group-buying mechanism or a non-group-buying mechanism and how to make a decision optimally based on adopted mechanism.

Keywords:

• group buying
• game theory
• market power

Additional information

Funding

This work is supported by China Postdoctoral Science Foundation under [grant number 2013M530404]; NSF of China under [grant number 71371129], [grant number 71172197] and [grant number 71301110]; and PCSIRT under [grant number IRT1173].