On the value of using group discounts under price competition

Reshef Meir, Tyler Lu, Moshe Tennenholtz, Craig Boutilier

Research output: Contribution to journalArticlepeer-review

Abstract

The increasing use of group discounts has provided opportunities for buying groups with diverse preferences to coordinate their behavior in order to exploit the best offers from multiple vendors. We analyze this problem from the viewpoint of the vendors, asking under what conditions a vendor should adopt a volume-based price schedule rather than posting a fixed price. We consider both the case of monopolist vendors and cases where a vendor competes with other vendors. When vendors have uncertainty about buyers' valuations specified by a known distribution, we show that a vendor is always better off posting a fixed price, provided that buyer types (valuations) are i.i.d. and that other vendors also use fixed prices. We also show that these assumptions cannot be relaxed: if buyer types are not i.i.d., or other vendors post discount schedules, then posting a schedule may yield a higher profit for the vendor. We provide similar results under a distribution-free uncertainty model, where vendors minimize their maximum regret over all type realizations.

Original languageEnglish
Pages (from-to)163-178
Number of pages16
JournalArtificial Intelligence
Volume216
DOIs
StatePublished - Nov 2014

Keywords

  • Competition
  • Discount schedules
  • Fixed prices

All Science Journal Classification (ASJC) codes

  • Language and Linguistics
  • Linguistics and Language
  • Artificial Intelligence

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