1 Bid Together , Buy Together : on the Efficacy of Group - Buying Business Models in Internet - Based Selling

In recent years, the advent of electronic commerce has led to the creation of many new and interesting business models for Internet-based selling. In this paper, we will explore a variant of the typical dynamic pricing mechanism, in which buyers and sellers actively engage in the price discovery process, that emphasizes the power of group buying. Dynamic pricing approaches are used by many well known Internet-based firms, including firms that offer online auctions such as eBay and Amazon.com. A group-buying discount is a dynamic pricing mechanism that mimics the general approach of traditional “discount shopping clubs.” Group buying pricing mechanisms permit buyers to aggregate their purchasing power and obtain lower prices than they otherwise would be able to get individually. However, with the recent closing of Mercata.com, a leading group-buying Web site, and the change in strategic direction of another market leader, Mobshop.com, the future of group-buying discount business models in Internet-based selling is no longer clear. In this essay, we will: (1) introduce the innovations associated with group-buying business models in Internet-based selling; (2) characterize the operational aspects of dynamic pricing mechanisms for group-buying through a discussion of a series of mini-cases with different firms that are widely recognized as the innovators in this area; (3) assess the quality of their business models relative to other new business models for Internet-based selling; and (4) draw conclusions about their sustainability in light of competitive forces in the marketplace.