Group buying price mechanism based on transaction cost saving and customers' waitingtime

Author(s): Guo Sandang, Liu Sifeng, Fang Zhigeng

Group buying is one of the major pricing mechanisms in which customers can buy goods in a low group rates due to a saving on transaction cost though they must wait for a certain time before they get the commodities. In this paper, a pricing mechanism is proposed to evaluate the impact of the waiting cost, competition, and the transaction cost saving on the profitability and efficiency of group buying. The results show that when a monopolistic seller operates a mixed channel, the seller will charge a relatively high individual price in the individual-buying channel to force most consumers to choose group buying and even close its individual-buying channel when the transaction cost saving of the group-buying channel compared with the individual channel is sufficiently high. The social welfares of mixed channels in monopolistic and duopolistic markets increase with the transaction costs saving and decrease with the level of time value. However, competition is good for social welfare when the level of time value is small enough or the cost saving is sufficiently high.

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