A group-buying mechanism for considering strategic consumer behavior

This study investigates a group-buying mechanism that considers strategic consumer behavior. In a market that consists of three types of consumers, the seller offers a product via two channels—spot purchasing and group buying—and maximizes his/her profit by setting the optimal group-buying threshold (G). Strategic consumers then choose one channel and enroll in the group based on the group-buying success rate and utility. Results show that consumer surplus decreases with increasing G and that two equilibria occur between the seller and strategic consumers. The behavior of the strategic consumers influences the group-buying success rate and the seller’s profit. We also discuss the optimization of G and the profit of the seller, and investigate the effects of the model parameters and demand volume on the optimal profit and optimal group-buying threshold G. When the retail inconvenience cost and risk aversion coefficient increase, the optimal profit decreases and the optimal G increases. However, when the demand of spot-purchasing consumers increases, the optimal profit increases and the optimal G decreases.