Group Buying of Competing Retailers

Abstract

U nder group buying, quantity discounts are offered based on the buyers' aggregated purchasing quantity, instead of individual quantities. As the price decreases with the total quantity, buyers receive lower prices than they otherwise would be able to obtain individually. Previous studies on group buying focus on the benefit buyers receive in reduced acquisition costs or enhanced bargaining power. In this paper, we show that buyers can instead get hurt from such cooperation. Specifically, we consider a two-level distribution channel with a single manufacturer and two retailers who compete for end customers. We show that, under linear demand curves, group buying is always preferable for symmetric (i.e., identical) retailers. For asymmetric retailers (i.e., differing in market base and/or efficiency), group buying is beneficial to the smaller (or less efficient) player. However, it can be detrimental to the larger (or more efficient) one. Despite the lower wholesale price under group buying, the manufacturer can receive a higher revenue. Interestingly, group buying is more likely to form when retailers are competitive in different dimensions. These insights are shown to be robust under general nonlinear demand curves, except for constant elastic demand with low demand elasticity.

Exploring strategic strengths and weaknesses of retail purchasing groups

“…Among retailers the most frequently used term has been "buying offices" (Essig, 2000), but also other terms such as "group buying" have been used (e.g. Chen and Roma, 2010). Apart from the type of company involved (public sector, industry or retailer), the use of the term also depends on the independence among the participating companies and the formality of the cooperation (Essig, 2000;Schotanus and Telgen, 2007).…”

Which Promotion Time Frame Works Best for Restaurant Group-buying Deals?

“…These studies mainly compared the pricing mechanisms of different groupbuying websites (Anand and Aron 2003;Chen et al 2006;Chen and Roma 2011) and focused on the benefits ) and trust (Kauffman et al 2010) that consumers gain from their group-buying practices. Other studies focused on the characteristics of various group-buying businesses (Kauffman and Wang 2001;Li et al 2009;Schotanus and Teigen 2007) and the implications of online discount vouchers on the profitability of a business (Edelman et al 2010).…”

Stable Group Purchasing Organizations

“…The per unit price paid by the coalition is p(Q), which is smaller than p(q i ), the per unit price that buyer i would get by transacting with the seller on his own. It is not uncommon that in such consortia each member pays the same per unit price, p(Q), and hence this model seems to be often adopted in research papers in collaborative purchasing (Chen and Roma 2008, Chen and Yin 2008, Keskinocak and Savasaneril 2008. In this case, the savings observed by buyer i due to alliance membership can be written as q i [p(q i ) − p(Q)].…”