Is group-buying price mechanism a good choice in the business-to-business system?

Group-buying price mechanism is useful for online sales since the 1990s, yet it has not been widely applied in the business-to-business (B2B) environment. In this study, we consider a B2B supply chain with one supplier and multiple retailers. With our analytical model, we compare the supplier's profit under the flat price mechanism, individual quantity discount mechanism, and group-buying price mechanism. The results show that when retailers are homogeneous, the individual quantity discount mechanism is the best choice for the supplier. In situations with heterogeneous retailers (i.e., a large retailer and multiple small retailers), the group-buying price mechanism is the best choice when there is a moderate difference in market scale between retailers. However, the condition is quite strict. These findings also hold with a step-wise price menu set by the supplier. Our conclusions explain why the group-buying price mechanism is not widely used in the B2B environment and provide some advice for the supplier on how to choose suitable pricing mechanisms.

Automated summary

In this study, the profit of a B2B supply chain with one supplier and multiple retailers is compared under the flat price mechanism, individual quantity discount mechanism, and group-buying price mechanism. The findings suggest that the individual quantity discount mechanism is preferable for homogeneous retailers, while the group-buying price mechanism is optimal for situations with heterogeneous retailers and a moderate difference in market scale. However, the condition for the latter is quite stringent. These insights shed light on the limited adoption of group-buying price mechanism in the B2B environment and provide guidance for suppliers in selecting suitable pricing mechanisms.