Simultaneous versus Sequential Group-Buying Mechanisms

This paper studies the design of group-buying mechanisms in a two-period game where cohorts of consumers arrive at a deal and make signup decisions sequentially. The group-buying deal succeeds whenever the total number of committed participants exceeds a pre-specified threshold. A firm can adopt either a sequential mechanism where the firm discloses to second-period arrivals the number of sign-ups accumulated in the first period, or a simultaneous mechanism where the firm does not post the number of first-period sign-ups and hence each cohort of consumers faces uncertainty about another cohort’s size and willingness-to-pay when making signup decisions. Our analysis shows that, compared to the simultaneous mechanism, the sequential mechanism leads to higher expected signup rates for both cohorts of consumers and hence higher deal success rates. This result holds when first-period arrivals can postpone their signup decisions strategically. Under the sequential mechanism, the deal success rate is higher when consumers discount future values less, when the deals are more attractive, and/or when the deals are applied to luxury purchases (versus necessity purchases). We find that, when the firm can manage the sequence of arrivals, it should inform the smaller cohort of consumers first, and then the larger cohort, given that each cohort has information on the stochastic characterizations of the other. We also extend our analysis to explore the conditions under which a group-buying mechanism leads to a higher expected profit than a posted-price mechanism.