Exogenous coalition formation in the e-marketplace based on geographical proximity

This paper considers a model for exogenous coalition formation in e-marketplaces. Using the informational advantage e-retailer creates coalitions of customers based on geographical proximity. Most of the literature regards this process as endogenous: a coalition leader bundles eventual purchases together in order to obtain a better bargaining position. In contrast - and in response to what is being observed in business practice - we analyse a situation in which an existing e-retailer exogenously forms customers' coalitions. Results of this study are highly encouraging. Namely, we demonstrate that even under highly imperfect warehouse management schemes leading to contagion eects, suggested combined delivery service may oer signifficant efficiency gains as well as opportunities for Pareto-improvement.