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Group Coupons: Interpersonal Bundling on the Internet

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Author Info

  • Yongmin Chen

    ()
    (Department of Economics, University of Colorado, Boulder)

  • Tianle Zhang

    ()
    (Faculty of Business, Hong Kong Polytechnic University)

Abstract

Sellers sometimes offer goods for sale under both a regular price and a discount for group purchase if the consumer group reaches some minimum size. This selling practice, which we term interpersonal bundling, has been popularized on the Internet by companies such as Groupon. We explain why interpersonal bundling is a profitable strategy in the presence of demand uncertainty, and how it may further boost profits by stimulating product information dissemination. Other reasons for its profitability are also discussed. We provide sufficient conditions for interpersonal bundling to dominate separate selling, and identify factors that determine the size of its profit advantage.

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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 12-09.

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Length: 31 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:net:wpaper:1209

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Web page: http://www.NETinst.org/

Related research

Keywords: Interpersonal Bundling; Group Coupon; Group Discount; Demand Uncertainty;

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  1. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
  2. Chenghuan Sean Chu & Phillip Leslie & Alan Sorensen, 2011. "Bundle-Size Pricing as an Approximation to Mixed Bundling," American Economic Review, American Economic Association, vol. 101(1), pages 263-303, February.
  3. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May.
  4. David P. Myatt & Justin P. Johnson, 2004. "On the Simple Economics of Advertising, Marketing, and Product Design," Economics Series Working Papers 185, University of Oxford, Department of Economics.
  5. Yongmin Chen & Michael H. Riordan, 2013. "Profitability Of Product Bundling," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(1), pages 35-57, 02.
  6. Jonathan Levin, 2011. "The Economics of Internet Markets," Discussion Papers 10-018, Stanford Institute for Economic Policy Research.
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