PRICE DISCRIMINATION THROUGH GROUP BUYING

This paper argues that when consumers are heterogeneous in group-buying costs, a monopolist seller may practice price discrimination through inducing certain consumers to participate in group buying. In contrast to the standard model, the optimal quantity/quality level for low valuation consumers without group buying is further distorted downward, whereas the levels for other consumers are socially optimal. Inducing group buying is more favorable when the proportion of high valuation consumers is higher, or the valuation differential is larger. We also discuss two extensions: one allowing for consumers' arbitrage behavior and the other one allowing for more potential group buying consumers.