Group Selling, Product Durability, and Consumer Behavior

Authors: He, Y., Ray, S., Yin, S.

Publications: Production and Operations Management

Abstract:

Firms producing complementary goods often strategically form groups and jointly sell their products to better coordinate their decisions. For consumer durables, decisions about such collaboration might be complicated due to two factors. Because of their durability and presence of used goods markets, such products engender “future” price competition between new and used goods. On the other hand, consumers of such products might be forward-looking and patient, both of which affect their purchasing behavior. In this study, we study how the above product and consumer characteristics interact to affect the group selling decisions of complementary firms. We do so through a two-period model consisting of a value chain with two upstream manufacturers and a downstream retailer. When consumers are relatively impatient and reluctant to wait to buy later, group selling by manufacturers will take place only when the end product is relatively perishable, that is, product durability is low. However, if consumers are patient, that is, willing to wait, collaboration happens only when the end product is quite durable; for relatively perishable products the manufacturers sell their products separately. We also comment on how our results are affected by factors like manufacturers directly selling to end consumers or there being multiple opportunities to decide whether or not to use group selling strategy.

Read full article: Production and Operations Management, July 29, 2016