E-tailer’s supply chain structures in group buying: Monopolistic or competitive retailing?

ABSTRACT We investigate the design of online group buying considering consumer characteristics under two different supply chain structures. Under monopolistic retailing, the e-tailer sells products through individual buying and group buying options simultaneously. Under competitive retailing, two e-tailers sell products through individual buying and group buying options respectively. We employ a stylized game-theoretical model to investigate equilibrium pricing and group size threshold decisions under two supply chain structures, and characterize the e-tailer’s optimal supply chain structure as well as study its impacts on the manufacturer and consumers. We show that the e-tailer always prefers a relatively high (high or low) group size threshold in the monopolistic (competitive) supply chain. Moreover, we find that the e-tailer chooses the monopolistic or competitive supply chain structure depending on combined parameters. Consequently, the e-tailer’s optimal supply chain structure may lead to an all-win or all-loss situation for the manufacturer and consumers. Our results underscore the importance in pricing and threshold decisions for online group buying and provide managerial insights for the group buying industry.