Threshold Effects in Online Group Buying

Abstract

This paper studies two types of threshold-induced effects: a surge of new sign-ups around the time when the thresholds of group-buying deals are reached, and a stronger positive relation between the number of new sign-ups and the cumulative number of sign-ups before the thresholds are reached than afterwards. This empirical study uses a dataset that records the inter-temporal cumulative number of sign-ups for group-buying deals in 86 city markets covered by Groupon, during a period of 71 days when Groupon predominantly used “a deal a day” format for each local market and posted the number of sign-ups in real time. We find that the first type of threshold effects is significant in all product categories and in all markets. The second type of threshold effects varies across product categories and markets. Our results underscore the importance of considering product and market characteristics in threshold design decisions for online group buying.

Keywords: Threshold effect, Group buying