Management Science and Information Systems' Seminar（2016-09）

Topic: Consumer Equilibrium, Pricing, and Efficiency in Group Buying: Theory and Evidence

Speaker: Liu Ming, University of Maryland

Abstract:

Group buying events, in which the unit price for a good or service declines with higher number of customer sign ups, are increasingly becoming popular for retailing goods and services, especially in emerging markets. This paper theoretically and empirically studies consumer equilibrium, pricing, and efficiency of these events. Modeling a continuous time customer arrival and sign-up process, we start by deriving the stochastic dynamic consumer equilibrium. Based on this equilibrium and utilizing sign-up level data from a major Chinese retailer’s group buying events, we then structurally estimate consumer arrival rates and utility distributions for 266 events. We demonstrate that consumers do not exhibit large-scale systematic threshold waiting behavior, and that our model, which is based on forward looking consumer behavior instead, has strong predictive power for the dynamic evolution of the eventsas observed in the data. For very low and very high consumer arrival rates, the retailer sets a very small price discount, mimicking a single-price sales event. However, for intermediate consumer arrival rate levels, she sets a deeper price discount to incentivize customers to recruit others to participate. Utilizing counterfactual analysis, we estimate that employing group buying increases customer demand by 14.2% and retailer profits by 9.2% on average, corresponding to an annual monetary gain of approximately $3.7M.

Introduction:

Ming Liu, Ph.D.candidate, University of Maryland, College Park, MD.

Research Interests: Dynamic Pricing, Economics of Operations Management, Empirical Operations Management, Sharing Economy, Business Analytics.

Your participation is warmly welcomed!