Archive | 2019
Online Group Buying and Crowdfunding: Two Cases of All-or-Nothing Mechanisms
Abstract
This chapter focuses on the two popular business models, namely, online group buying and crowdfunding. Both models use variations of all-or-nothing mechanisms, where transactions will take place only if the total number of committed purchases/pledges exceeds a specified threshold within a certain period. We seek to understand the impact of all-or-nothing mechanisms on consumer behavior, as well as the optimal design of such mechanisms, from the perspective of third-party platforms like Groupon and Kickstarter. First, using a dataset from the online group buying industry, we empirically identify two types of threshold-induced effects on consumer behavior. Next, we study optimal information disclosure and pricing strategies under all-or-nothing mechanisms. We show that it is always beneficial for the firm to disclose the cumulative number of sign-ups to reduce the uncertainty for later arrivals. Regarding pricing, we show that the introduction of a price menu for the same product can be a win-win for both the creator and buyers.