Group buying vs individual buying; a competitive approach for two retailers

Document Type : Article


Department of Industrial Engineering, K. N. Toosi University of Technology, Tehran, Iran


Development of technology and expansion of social media emerge group-buying mechanism as a popular strategy. In this paper, two competitive retailers are considered that sell the same product to customer in a market, Group buying and individual buying. Three Different competition scenarios are considered, in order to implement the first two strategies, the Stackelberg model is used where the group-buying retailer and the Individual retailer are assumed to be the leader and follower, respectively. For the third strategy, the Nash equilibrium is applied when they decide separately. We analysis the optimal and equilibrium strategy in each scenario. And also determine the conditions for each retailer to be present in the market in each scenarios. Finally, a numerical example is provided, in order to illustrate the effectiveness of the aforementioned three scenarios in models.


  1. References:

    1. Hajli, N. and Sims, J., “Social commerce: The transfer of power from sellers to buyers”, Technological Forecasting and Social Change, 94, pp. 350–358 (2015).
    2. Marvel, H. P. and Yang, H., “Group purchasing, nonlinear tariffs, and oligopoly”, International Journal of Industrial Organization, 26(5), pp. 1090–1105 (2008).
    3. Inderst, R. and Shaffer, G., “Retail Mergers, Buyer Power and Product Variety”, The Economic Journal, 117(516), pp. 45–67 (2007).
    4. Li, X., “Group Buying, Buyer Heterogeneity, and Sellers’ Bargaining Power”, Decision Sciences, 43(5), pp. 761–783 (2012).
    5. Chen, Y. and Li, X., “Group Buying Commitment and Sellers’ Competitive Advantages”, Journal of Economics & Management Strategy, 22(1), pp. 164–183 (2013).
    6. Garcia, J. M., Freire, O. B. D. L., Santos, E. B. A., and Andrade, J., “Factors affecting satisfaction and loyalty to online group buying”, Revista de Gestao, 27(3), pp. 211–228 (2020).
    7. Sharma, V. M. and Klein, A., “Consumer perceived value, involvement, trust, susceptibility to interpersonal influence, and intention to participate in online group buying”, Journal of Retailing and Consumer Services, 52, p. 101946 (2020).
    8. In, J., Bradley, R. v., Bichescu, B. C., and Smith, A. L., “Breaking the chain: GPO changes and hospital supply cost efficiency”, International Journal of Production Economics, 218, pp. 297–307 (2019).
    9. Dana, J. D., “Buyer groups as strategic commitments”, Games and Economic Behavior, 74(2), pp. 470–485 (2012).
    10. Zhou, M., Dan, B., Ma, S., and Zhang, X., “Supply chain coordination with information sharing: The informational advantage of GPOs”, European Journal of Operational Research, 256(3), pp. 785–802 (2017).
    11. Yang, Y. C., Cheng, H. K., Ding, C., and Li, S., “To join or not to join group purchasing organization: A vendor’s decision”, European Journal of Operational Research, 258(2), pp. 581–589 (2017).
    12. Zimon, G., “The influence of the central warehouse on the functioning of Polish small and medium-sized enterprises operating in group purchasing organizations”, Problems and Perspectives in Management, 18(1), pp. 26–32 (2020).
    13. Chen, M., Cong, L., He, J., Yang, Y., Xu, Y., Tang, M., and Jin, C., “Prospects for development of group purchasing organizations (GPOs) in China within the context of national centralized drug procurement”, Drug Discoveries & Therapeutics, 14(3), p. 2020.03024 (2020).
    14. Ahmadi, A., Heydari, M., Pishvaee, M. S., and Teimoury, E., “Strategic decisions to join group purchasing organizations”, Computers and Industrial Engineering, 149, p. 106869 (2020).
    15. Zimon, G., Babenko, V., Sadowska, B., Chudy-Laskowska, K., and Gosik, B., “Inventory Management in SMEs Operating in Polish Group Purchasing Organizations during the COVID-19 Pandemic”, Risks 2021, Vol. 9, Page 63, 9(4), p. 63 (2021).
    16. Lee, C., Langdo, J., Hwang, D., Marques, V., and Hwang, P., “Impacts of distributors and group purchasing organizations on hospital efficiency and profitability: a bilateral data envelopment analysis model”, International Transactions in Operational Research (2021).
    17. Anand, K. S. and Aron, R., “Group Buying on the Web: A Comparison of Price-Discovery Mechanisms”, Management Science, 49(11), pp. 1546–1562 (2003).
    18. Jing, X. and Xie, J., “Group buying: A new mechanism for selling through social interactions”, Management Science, 57(8), pp. 1354–1372 (2011).
    19. Subramanian, U. and Rao, R. C., “Leveraging experienced consumers to attract new consumers: An equilibrium analysis of displaying deal sales by daily deal websites”, Management Science, 62(12), pp. 3555–3575 (2016).
    20. Zhou, M., Dan, B., Ma, S., and Zhang, X., “Supply chain coordination with information sharing: The informational advantage of GPOs”, European Journal of Operational Research, 256(3), pp. 785–802 (2017).
    21. He, N., Jiang, Z. Z., Sun, M., and Sheng, Y., “Group Buying of Competing Retailers with Fairness Concerns”, Journal of Systems Science and Systems Engineering, 0(0), pp. 1–20 (2020).
    22. Liang, X., Ma, L., Xie, L., and Yan, H., “The informational aspect of the group-buying mechanism”, European Journal of Operational Research, 234(1), pp. 331–340 (2014).
    23. Tran, T. and Desiraju, R., “Group-buying and channel coordination under asymmetric information”, European Journal of Operational Research, 256(1), pp. 68–75 (2017).
    24. Deng, S., Jiang, X., and Li, Y., “Optimal price and maximum deal size on group-buying websites for sellers with finite capacity”, International Journal of Production Research, 56(5), pp. 1918–1933 (2018).
    25. Wu, Y., Li, D., and Li, T., “Coordination of traditional and online group-buying channels considering website promotion effort”, Scientia Iranica, 27(4), pp. 2069–2092 (2020).
    26. Zhang, G., Shang, J., and Yildirim, P., “Optimal pricing for group buying with network effects”, Omega (Westport), 63, pp. 69–82 (2016).