The Operational Advantages of Threshold Discounting Offers

What is it about?

We explain the advantage of offering Groupon-like discounts (i.e., that trigger only when enough people join the deal) from an operational perspective, that is, as a way to improve capacity utilization and improve profit, in markets characterized by seasonal demand, even in the absence of economies of scale.

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Why is it important?

It provides a novel explanation for the use of 'activation thresholds' in group buying offers. It is also the first paper to show that customers' strategic behavior can benefit the firm.