Coordination of traditional and online group-buying channels considering website promotion effort

Document Type: Article

Authors

School of Business, East China University of Science and Technology, Shanghai 200237, China

Abstract

The development of modern technology and e-commerce have given rise to the emergence of many new selling channels. Among one of them, group-buying attracts numerous new customers rapidly due to the characters of deep discounts and great convenience. Although deep discounts create sales growth for sellers, it also causes the loss in their profit margins. Meanwhile, the business model of group-buying websites is not thoroughly understood in literature. Based on a Stackelberg game framework, this paper studies the equilibrium between a group-buying website and a seller. The optimal pricing and channel decisions of the seller and the optimal group-buying pricing and promotion effort decisions for the website are investigated to offer guidance for their businesses. We find that the total profit of the whole system could be hurt when the agreement price or revenue sharing contracts are adopted by the firms. We propose a revenue-cost sharing contract that could coordinate the total profit. Finally, we show how the scale of the seller and the website and the unit cost influence the optimal decisions in the equilibrium.

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