Simultaneous versus Sequential Group-Buying Mechanisms

Abstract

This paper studies the design of group-buying mechanisms in a two-period game where cohorts of consumers arrive at a deal and make sign-up decisions sequentially. A firm can adopt either a sequential mechanism where the firm discloses to second-period arrivals the number of sign-ups accumulated in the first period, or a simultaneous mechanism where the firm does not post the number of first-period sign-ups and hence each cohort of consumers face uncertainty about another cohort's size and valuations when making sign-up decisions. Our analysis shows that, compared to the simultaneous mechanism, the sequential mechanism leads to higher deal success rates and larger expected consumer surpluses. This result holds for a multi-period extension and when the firm offers a price discount schedule with multiple breakpoints. Finally, when the firm can manage the sequence of arrivals, it should inform the smaller cohort of consumers first.

Keywords: group buying, assurance contract, mechanism design, Bayesian equilibrium, rational expectations equilibrium