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 MarylandTime:Monday, Dec. 12th, 14:00-16:00

Place:Room 216, No.2 Guanghua Building

Abstract:

Group buying events, in which the unit price for a good or service declines with higher number ofcustomer sign ups, are increasingly becoming popular for retailing goods and services, especially inemerging markets. This paper theoretically and empirically studies consumer equilibrium, pricing, andefficiency of these events. Modeling a continuous time customer arrival and sign-up process, we start byderiving the stochastic dynamic consumer equilibrium. Based on this equilibrium and utilizing sign-uplevel data from a major Chinese retailer’s group buying events, we then structurally estimate consumerarrival rates and utility distributions for 266 events. We demonstrate that consumers do not exhibitlarge-scale systematic threshold waiting behavior, and that our model, which is based on forward lookingconsumer 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 smallprice discount, mimicking a single-price sales event. However, for intermediate consumer arrival ratelevels, she sets a deeper price discount to incentivize customers to recruit others to participate. Utilizingcounterfactual 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!