Simultaneous versus Sequential Group-Buying Mechanisms

Management Science, 59(12), 2805-2822

40 Pages Posted: 13 Jun 2011 Last revised: 8 Mar 2014

See all articles by Ming Hu

Ming Hu

University of Toronto - Rotman School of Management

Mengze Shi

University of Toronto - Rotman School of Management

Jiahua Wu

Imperial College Business School

Date Written: February 4, 2013

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

Suggested Citation

Hu, Ming and Shi, Mengze and Wu, Jiahua, Simultaneous versus Sequential Group-Buying Mechanisms (February 4, 2013). Management Science, 59(12), 2805-2822. Available at SSRN: https://ssrn.com/abstract=1862465 or http://dx.doi.org/10.2139/ssrn.1862465

Ming Hu

University of Toronto - Rotman School of Management ( email )

105 St. George st
Toronto, ON M5S 3E6
Canada
416-946-5207 (Phone)

HOME PAGE: http://ming.hu

Mengze Shi

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Jiahua Wu (Contact Author)

Imperial College Business School ( email )

Tanaka Building
South Kensington Campus
London, SW7 2AZ
United Kingdom
02075949851 (Phone)

HOME PAGE: http://www3.imperial.ac.uk/people/j.wu

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