Application of group buying pricing in two- echelon distribution systems

We examine the feasibility and profitability of group buying pricing in two-echelon distribution systems with one monopolistic supplier and multiple retailers. The problem is analyzed as a Stackelberg game in which the supplier acts as the leader and the retailers act as followers. We show that group buying, if designed properly, can be a win-win solution for both the supplier and retailers comparing with the conventional fixed price scheme. We also compare our results to another commonly adopted pricing scheme, quantity discount. In a system with symmetric retailers, quantity discount can always dominate group buying, while a supplier facing relatively asymmetric retailers may favor group buying.