Abstract
This paper studies a model of interpersonal bundling, in which a monopolist offers a good for sale under a regular price and a group purchase discount if the number of consumers in a group—the bundle size—belongs to some menu of intervals. We find that this is often a profitable selling strategy in response to demand uncertainty, and it can achieve the highest profit among all possible selling mechanisms. We explain how the profitability of interpersonal bundling with a minimum or maximum group size may depend on the nature of uncertainty and on parameters of the market environment, and we discuss strategic issues related to the optimal design and implementation of these bundling schemes. Our analysis sheds light on popular marketing practices such as group purchase discounts, and it offers insights on potential new marketing innovation.
| Original language | English |
|---|---|
| Pages (from-to) | 1456-1471 |
| Number of pages | 16 |
| Journal | Management Science |
| Volume | 61 |
| Issue number | 6 |
| Early online date | 10 Dec 2014 |
| DOIs | |
| Publication status | Published - Jun 2015 |
Bibliographical note
An earlier version of this paper was circulated under the title of Group Coupons: Interpersonal Bundling on the Internet. The authors thank Mark Armstrong, Mike Riordan, anonymous referees, the associate editor, the editor, and participants of several seminars for helpful discussions and comments.Funding
Financial support from the NET Institute [Summer Research Grant, 2012] is gratefully acknowledged.
Keywords
- bundling
- demand uncertainty
- group discount
- group purchase
- interpersonal bundling