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Group Coupons: Interpersonal Bundling on the Internet

Author

Listed:
  • 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.

Suggested Citation

  • Yongmin Chen & Tianle Zhang, 2012. "Group Coupons: Interpersonal Bundling on the Internet," Working Papers 12-09, NET Institute.
  • Handle: RePEc:net:wpaper:1209
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    File URL: http://www.netinst.org/Chen_12-09.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Jonathan D. Levin, 2011. "The Economics of Internet Markets," NBER Working Papers 16852, National Bureau of Economic Research, Inc.
    3. R. Preston McAfee & John McMillan & Michael D. Whinston, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 371-383.
    4. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June.
    5. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 90(3), pages 475-498.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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