Is More Information Better? An Economic Analysis of Group-Buying Platforms

Group buying as a new form of e-commerce has experienced rapid development over the past few years. Group-buying platforms offer a new channel for local small- to medium-sized companies to promote themselves, and also provide consumers with the opportunity to experience new products and services at deep discounts. In this paper, we examine merchants’ pricing strategies and consumers’ purchasing decisions when different types of information are available on a group-buying platform. Consumers purchasing deals from group-buying platforms face a high level of quality uncertainty, due to lack of experience with the products and incomplete information about the products and merchants on group-buying platforms. The lack of face-to-face communication between customers and merchants before redeeming the deals also intensifies the uncertainty between the transacting parties. Group-buying platforms seek to alleviate such uncertainty by designing a rich user interface that contains various types of information about the merchants or the deals. We use a game-theoretic model to capture the interactions between merchants and consumers under three cases, contextualized by a simple, moderate, or complex information environment. We show that merchants benefit when the environment moves from a simple to moderate information environment, but further movement from a moderate to a complex information environment leads to a more intriguing effect on merchants’ discount strategies. In particular, very high-quality merchants or very low-quality merchants benefit from larger discounts in the context of complex information versus a moderate information environment; therefore, such merchants are disadvantaged when more than a moderate amount of information is provided. Our analysis shows that providing more information can harm merchants under certain conditions; we offer implications for merchants as well as for the group-buying platforms concerning their information strategies