Does Group-Shopping Work?

articles
July 26 2000 3:00 AM

Does Group-Shopping Work?

The economics of Mercata and Mobshop. 

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Price discrimination often crops up in all sorts of other places, like supermarket coupons and "outlets" located in Freeport, Maine. The idea is that if it's a big hassle to get a discounted box of cereal or a cheap Barney's suit, then only cheapskates will bother to get the discount. And firms don't lose money by giving a discount to cheapskates, since cheapskates wouldn't buy at regular price anyway. (In fact, this argument has been used by economists to justify long lines and lots of red tape in order to qualify for welfare benefits. The argument is that if people are willing to run such a gantlet, they must really need the help.)

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So, on this theory, manufacturers might be willing to offer discounted goods to Web sites such as MobShop and Mercata—and not to Circuit City and Best Buy—because group-shopping sites attract only those cheapskates who won't pay full price at an ordinary shop but who are willing to take the time to sign up for a group buy, wait a few days for the price to fall, and then, and only then, get the item. It also explains why cheaper items like DVDs are typically bargains on group-shopping sites, whereas bigger-ticket items (like, say, laser printers) aren't: Firms know that if they offer Mercata and MobShop discounts on expensive items, then even non-cheapskates will undergo the hassle of waiting a few days to get the discount. This would cut into ordinary sales. In sum, group buying just illustrates a time-honored truth. It's possible to save time or money—but not both.

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