Group Buying Commitment and Sellers’ Competitive Advantages

20 Pages Posted: 10 Jan 2013

See all articles by Yuxin Chen

Yuxin Chen

Northwestern University - Department of Marketing

Xinxin Li

University of Connecticut - Department of Operations & Information Management

Multiple version iconThere are 2 versions of this paper

Date Written: Spring 2013

Abstract

This paper examines a model of duopoly firms selling to an exogenously formed buyer group consisting of members with heterogeneous preferences. Two research questions are addressed: (1) when is it optimal for a buyer group to commit to exclusive purchase from a single seller, and (2) how does the presence of group buying and the exclusive purchase commitment associated with it affect firms’ incentives to invest in quality improvement? We find that, even though exclusive purchase commitment benefits buyers when the competing products provide similar quality, it may lower buyer surplus if one product is significantly advantaged and/or the competing products are not highly differentiated horizontally. This result is robust even if the buyer group is formed endogenously. In addition, contingent on the similarity between the competing sellers’ investment costs, the sellers’ incentives to improve quality may be positively or negatively affected by the presence of group buying.

Suggested Citation

Chen, Yuxin and Li, Xinxin, Group Buying Commitment and Sellers’ Competitive Advantages (Spring 2013). Journal of Economics & Management Strategy, Vol. 22, Issue 1, pp. 164-183, 2013, Available at SSRN: https://ssrn.com/abstract=2198721 or http://dx.doi.org/10.1111/jems.12000

Yuxin Chen (Contact Author)

Northwestern University - Department of Marketing ( email )

Kellogg School of Management
2001 Sheridan Rd.
Evanston, IL 60208
United States

Xinxin Li

University of Connecticut - Department of Operations & Information Management ( email )

2100A Hillside Rd
Storrs, CT 06269
United States
(860) 486-3062 (Phone)

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