Intertemporal Segmentation Via Flexible-Duration Group Buying

Forthcoming, Manufacturing and Service Operations Management

69 Pages Posted: 7 Oct 2018 Last revised: 7 Dec 2019

See all articles by Ming Hu

Ming Hu

University of Toronto - Rotman School of Management

Jingchen Liu

Nanjing University - School of Business

Xin Zhai

Peking University - Guanghua School of Management

Date Written: September 1, 2018

Abstract

(1) Problem definition: We study a special form of group buying: the group buying succeeds only if the number of sign-ups reaches a preset threshold, with no duration constraint. Customers with heterogeneous valuations arrive sequentially and decide between signing up for the group buying or purchasing a regular product. To decide on whether to join the group buying, customers need to anticipate their expected waiting time, which varies depending on the cumulative sign-ups by the time of their arrival. The firm decides on the prices of the group-buying product and regular product, with the product quality levels and group-buying size exogenously determined. (2) Academic/Practical relevance: Such type of group buying is often adopted for a special edition of the product and offered alongside a constantly available regular product. (3) Methodology: We study the product line design with the group-buying sign-up behavior of customers characterized by the rational expectations equilibrium in a random pledging process. (4) Results: We show that group buying with flexible duration can result in intertemporal customer segmentation, as different segments might be admitted at different times in the dynamic sign-up process. Such intertemporal segmentation is a natural discrimination scheme and has non-trivial implications. First, the efficiency loss due to waiting for enough sign-ups may decrease in the batch size required for economic production. Second, as valuation heterogeneity in the market increases, the firm may not always benefit from offering group buying along with the regular product. Third, group buying can achieve a win-win-win situation for both high-end and low-end customers as well as the firm. (5) Managerial implications: In addition to demonstrating the profitability of offering flexible-duration group buying, the firm can strengthen its profitability by contingently setting prices or concealing sign-up information in group buying. We also confirm the robustness of our main insights by considering customers’ heterogeneous patience levels, and horizontally differentiated products, among others.

Keywords: Group Buying, Flexible Duration, Intertemporal Segmentation, Price Discrimination

Suggested Citation

Hu, Ming and Liu, Jingchen and Zhai, Xin, Intertemporal Segmentation Via Flexible-Duration Group Buying (September 1, 2018). Forthcoming, Manufacturing and Service Operations Management, Available at SSRN: https://ssrn.com/abstract=3242687 or http://dx.doi.org/10.2139/ssrn.3242687

Ming Hu (Contact Author)

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

Jingchen Liu

Nanjing University - School of Business ( email )

22 Hankou Road
Nanjing, Jiangsu 210093
China

Xin Zhai

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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