Analysis of pricing strategies for community-based group buying: The impact of competition and waiting cost

Abstract

Group buying is one of the major pricing mechanisms in which retailers can offer low group rates due to a saving on transaction costs and its target consumers are those with lower sensitivity on waiting time. Under group buying, group size significantly affects the waiting cost to which consumers have different tolerances. In this paper, we develop a two-stage pricing game to evaluate the impact of the waiting cost, competition, and group-facilitating technology on the profitability and efficiency of community-based group buying. Our results point out that when a monopolistic retailer operates a mixed channel, the retailer will charge a relatively high group rates in the group-buying channel to force most consumers to choose individual buying unless the transaction cost in the individual-buying channel is sufficiently high. If two competing retailers adopt different pure channels, investment in group-facilitating technology may weaken the profit of the retailer adopting community-based group buying when the actual selling-cost saving resulted from community-based group buying is not significant.