Unexpected Motivations behind Joining Group Purchasing Organization (GPO)

Saha, R L and Seidmann, A and Tilson, V (2011) Unexpected Motivations behind Joining Group Purchasing Organization (GPO). In: 2011 44th Hawaii International Conference on System Sciences.

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Abstract

Group Purchasing Organizations (GPOs) are commonly motivated by larger volume discounting and cost-saving opportunities through economies of scale. We show that group purchasing also has other motivations. These motivations can explain a rather puzzling procurement practice where some large buyers subscribe to the GPO membership, only to later procure directly from the same vendor selling through the GPO. Interestingly, such GPO members often succeed in negotiating a price less than the GPO-negotiated price. The "economies of scale" reasoning suggest that an individual buyer would always be better off purchasing supplies as part of a group rather than on its own. However, we show that the above-mentioned practice of renegotiation by large GPO members can be explained by price uncertainties prevailing in the market. We also explain the impact of such renegotiation on the total buyer surplus as well as the surplus of individual buyers of different sizes.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Saha, R LUNSPECIFIED
Item Type: Conference or Workshop Item (Paper)
Additional Information: The research paper was published by the author with the affiliation of University of Rochester.
Uncontrolled Keywords: Cost reduction, Pricing, Procurement, Purchasing, Unexpected motivation, Group purchasing Organization, Volume discounting, Cost saving, Procurement practice, Supply purchasing, Price uncertainty, Total buyer surplus, Contracts Pricing, Hospitals, Uncertainty, Economies of scale, Procurement
Subjects: Information Systems
Depositing User: Ilayaraja M
Date Deposited: 16 Jun 2019 17:46
Last Modified: 16 Jun 2019 17:47
URI: http://eprints.exchange.isb.edu/id/eprint/1088
Publisher URL: https://dx.doi.org/10.1109/HICSS.2011.465
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