Is group-buying price mechanism a good choice in the business-to-business system?
Lei Guan
School of Management and Economics, Beijing Institute of Technology, Beijing, China
Search for more papers by this authorCorresponding Author
Wenju Niu
Department of Logistics Management, Nanjing University of Finance & Economics, Nanjing, China
Corresponding author.
Search for more papers by this authorLianmin Zhang
Shenzhen Research Institute of Big Data, Shenzhen, China
Search for more papers by this authorLei Guan
School of Management and Economics, Beijing Institute of Technology, Beijing, China
Search for more papers by this authorCorresponding Author
Wenju Niu
Department of Logistics Management, Nanjing University of Finance & Economics, Nanjing, China
Corresponding author.
Search for more papers by this authorLianmin Zhang
Shenzhen Research Institute of Big Data, Shenzhen, China
Search for more papers by this authorAbstract
Group-buying price mechanism is useful for online sales since the 1990s, yet it has not been widely applied in the business-to-business (B2B) environment. In this study, we consider a B2B supply chain with one supplier and multiple retailers. With our analytical model, we compare the supplier's profit under the flat price mechanism, individual quantity discount mechanism, and group-buying price mechanism. The results show that when retailers are homogeneous, the individual quantity discount mechanism is the best choice for the supplier. In situations with heterogeneous retailers (i.e., a large retailer and multiple small retailers), the group-buying price mechanism is the best choice when there is a moderate difference in market scale between retailers. However, the condition is quite strict. These findings also hold with a step-wise price menu set by the supplier. Our conclusions explain why the group-buying price mechanism is not widely used in the B2B environment and provide some advice for the supplier on how to choose suitable pricing mechanisms.
References
- Anand, K.S., Aron, R., 2003. Group buying on the web: a comparison of price discovery mechanisms. Management Science 49, 11, 1546–1562.
- Chen, F., Federgruen, A., Zheng, Y.S., 2001. Coordination mechanisms for a distribution system with one supplier and multiple retailers. Management Science 47, 5, 693–708.
- Chen, J., Chen, X., Kauffman, R.J., Song, X., 2009a. Should we collude? Analyzing the benefits of bidder cooperation in online group-buying auctions. Electronic Commerce Research & Applications 8, 4, 191–202.
- Chen, J., Chen, X., Song, X., 2002. Bidder's strategy under group-buying auction on the internet. IEEE Transactions on Systems Man and Cybernetics Part A-Systems and Humans 32, 6, 680–690.
10.1109/TSMCA.2002.807029 Google Scholar
- Chen, J., Chen, X., Song, X., 2007. A comparison of the group-buying auction and the fixed-pricing mechanism. Decision Support Systems 43, 2, 445–459.
- Chen, J., Guan, L., Cai, X., 2013. Analysis on buyers' cooperative strategy under group-buying price mechanism. Journal of Industrial & Management Optimization 9, 2, 291–304.
- Chen, J., Kauffman, R.J., Liu, Y., Song, X., 2010. Segmenting uncertain demand in group-buying auctions. Electronic Commerce Research & Applications 9, 2, 126–147.
- Chen, R., Li, C., Zhang, R., 2009b. Group buying mechanisms under quantity discounts. Working Paper.
- Chen, R. R., Roma, P., 2011. Group buying of competing retailers. Production and Operations Management 20, 2, 181–197.
- Conlon, J. R., 2017. Does buyer heterogeneity steepen or flatten quantity discounts? The RAND Journal of Economics 48, 4, 1027–1043.
- Cook, J., 2001. Venture capital: where Mercata led, consumers were unwilling to follow. Technical Report, Seattle Post-Intelligencer.
- Crowther, J., 1964. Rationale for quantity discounts. Harvard Business Review, March-April, 121–127.
- Guan, L., Chen, H., Ma, H., Zhang, L., 2022. Optimal group-buying price strategy considering the information-sharing of the seller and buyers in social e-commerce. International Transactions in Operational Research 29, 3, 1769–1790.
- Hu, M., Liu, J., Zhai, X., 2021. Intertemporal segmentation via flexible-duration group buying. Manufacturing & Service Operations Management 23, 5, 1157–1174.
- Hu, M., Shi, M., Wu, J., 2013. Simultaneous vs. sequential group-buying mechanisms. Management Science 59, 12, 2805–2822.
- Jing, X., Xie, J., 2011. Group buying: a new mechanism for selling through social interactions. Management Science 57, 8, 1354–1372.
- Kauffman, R.J., Lai, H., Ho, C.T., 2010. Incentive mechanisms, fairness and participation in online group-buying auctions. Electronic Commerce Research & Applications 9, 3, 249–262.
- Kauffman, R.J., Wang, B., 2001. New buyers' arrival under dynamic pricing market microstructure: the case of group-buying discounts on the internet. Journal of Management Information Systems 18, 2, 157–188.
- Kauffman, R.J., Wang, B., 2002. Bid together, buy together: on the efficacy of group-buying business models in internet-based selling. In P. Lowry, J. Cherrington, R. Watson (eds) Handbook of Electronic Commerce in Business and Society. CRC Press, Boca Raton, FL, pp. 99–137.
- Lal, R., Staelin, R., 1984. An approach for developing an optimal discount pricing policy. Management Science 30, 12, 1524–1539.
- Lau, A.H.L., Lau, H.S., Wang, J.C., 2007. Designing a quantity discount scheme for a newsvendor-type product with numerous heterogeneous retailers. European Journal of Operational Research 180, 2, 585–600.
- Lee, H.L., Rosenblatt, M.J., 1986. A generalized quantity discount pricing model to increase supplier's profits. Management Science 32, 9, 1177–1185.
- Nie, T., Du, S., 2017. Dual-fairness supply chain with quantity discount contracts. European Journal of Operational Research 258, 2, 491–500.
- Parlar, M., Wang, Q., 1994. Discounting decisions in a supplier-buyer relationship with a linear buyer's demand. IIE Transactions 26, 2, 34–41.
- Qiu, Q., Jiang, L., 2019. How to deal with consumers who group to request a discount? Naval Research Logistics 66, 6, 469–484.
- Tran, T., Desiraju, R., 2017. Group-buying and channel coordination under asymmetric information. European Journal of Operational Research 256, 1, 68–75.
- Venegas, B.B., Ventura, J.A., 2018. A two-stage supply chain coordination mechanism considering price sensitive demand and quantity discounts. European Journal of Operational Research 264, 2, 524–533.
- Wan, Q., Yang, S., Liao, Y., Xia, Y., 2020. Group-buying coupons considering consumers perceived ease of use. International Transactions in Operational Research 27, 3, 1638–1663.
- Wang, Q., 2002. Determination of suppliers' optimal quantity discount schedules with heterogeneous buyers. Naval Research Logistics 49, 1, 46–59.
- Wang, Q., Wu, Z., 2000. Improving a supplier's quantity discount gain from many different buyers. IIE Transactions 32, 11, 1071–1079.
- Won, Y., 2017. How can a retailer identify the dominant strategy in a newsvendor situation with a supplier take-it-or-leave-it offer? International Transactions in Operational Research 24, 6, 1435–1462.
- Xu, X., Wu, J., Fan, Y., Yu, Y., 2022. Marketplace or reselling: the pricing decisions and face value of the coupons under the cap-and-trade regulation. International Transactions in Operational Research 31, 1, 478–514.
- Yan, Y., Zhao, R., Lan, Y., 2017. Asymmetric retailers with different moving sequences: group buying vs. individual purchasing. European Journal of Operational Research 261, 3, 903–917.
- Yang, S.L., Zhou, Y.W., 2006. Unified discount pricing models of a two-echelon channel with a monopolistic manufacturer and heterogeneous retailers. International Transactions in Operational Research 13, 2, 143–168.
10.1111/j.1475-3995.2006.00540.x Google Scholar
- Zhou, Y., Xie, J., 2014. Potentially self-defeating: group buying in a two-tier supply chain. Omega 49, 42–52.
- Zhu, J., Teng, L., Zhu, Z., Lu, H., 2020. A pricing method of online group-buying for continuous price function. Neural Computing and Applications 32, 9, 4453–4461.
