Segmenting uncertain demand in group-buying auctions

  • Authors:

  • Jian Chen;Robert J. Kauffman;Yunhui Liu;Xiping Song

  • Affiliations:

  • Research Center for Contemporary Management, Key Research Institute of Humanities and Social Sciences at Universities, School of Economics and Management, Tsinghua University, Beijing 100084, Chin ...;W.P. Carey School of Business, and School of Computing and Informatics, Arizona State University, Phoenix, AZ 85287, USA;China Shenhua Coal to Liquid and Chemical Co. Ltd., Beijing 100011, China;Department of System Engineering and Engineering Management, The Chinese University of Hong Kong, China

  • Venue:
  • Electronic Commerce Research and Applications
  • Year:
  • 2010

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Abstract

Demand uncertainty is a key factor in a seller's decision-making process for products sold through online auctions. We explore demand uncertainty in group-buying auctions in terms of the extent of low-valuation demand and high-valuation demand. We focus on the analysis of a monopolistic group-buying retailer that sells products to consumers who express different product valuations. We also examine the performance of a group-buying seller who faces competitive posted-price sellers in a market for the sale of the same products, under similar assumptions about uncertain demand. Based on a Nash equilibrium analysis of bidder strategies for both of these seller-side competition structures, we are able to characterize the group-buying auction bidders' dominant strategies. We obtained a number of interesting findings. Group-buying is likely to be more effective in settings where there is larger low-valuation demand than high-valuation demand. The structure of demand matters. This finding has relevance to the marketplace for new cameras, next-generation microprocessors and computers, and other high-valuation goods, which are unlikely to be as effectively sold in group-buying markets. We obtained additional results for the case of continuous demand, and find that there is a basis for the seller to improve revenues via effective group-buying auction price curve design.