Exogenous coalition formation in the e-marketplace based on geographical proximity

Authors:
Tomasz Michalak;Joanna Tyrowicz;Peter McBurney;Michael Wooldridge
Affiliations:
Department of Computer Science, The University of Liverpool, Ashton Street, L69 3BX Liverpool, UK;Faculty of Economics, The University of Warsaw, ul. Dluga 44/50, 04-254 Warsaw, Poland;Department of Computer Science, The University of Liverpool, Ashton Street, L69 3BX Liverpool, UK;Department of Computer Science, The University of Liverpool, Ashton Street, L69 3BX Liverpool, UK
Venue:
Electronic Commerce Research and Applications
Year:
2009

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Abstract

This paper considers a model for exogenous coalition formation in e-marketplaces. Using its informational advantage, an e-retailer creates coalitions of customers based on geographical proximity. Most of the literature regards this process as endogenous: a coalition leader among the buyers bundles eventual purchases together in order to obtain a better bargaining position. In contrast - and in response to what is typically observed in business practice - we analyse a situation in which an existing e-retailer exogenously forms customers' coalitions. Results of this study are highly encouraging. Namely, we demonstrate that even under highly imperfect warehouse management schemes leading to contagion effects, the proposed combined delivery service may offer significant efficiency gains as well as opportunities for Pareto improvement.