Two-Sided Platform Competition in the Online Daily Deals Promotion Market

Byung-Cheol Kim, Jeongsik "Jay" Lee () and Hyunwoo Park ()
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Jeongsik "Jay" Lee: Scheller College of Business, Georgia Institute of Business
Hyunwoo Park: School of Industrial and System Engineering

No 12-04, Working Papers from NET Institute

Abstract: We empirically investigate the platform competition in the online daily deals promotion market that is characterized by intense rivalry between two leading promotion sites, Groupon and LivingSocial, that broker between merchants and consumers. We find that deals offered through Groupon, the incumbent, sell more and generate higher revenues than those offered by LivingSocial, the entrant. We show that the greater network size in the consumer side entirely explains the incumbent's lead in the merchant side performance, indicating the existence of cross-side network effects at the aggregated market level. However, this performance advantage is dampened by the entrant's competitive chasing at local markets through offers of greater discounts and lower prices. Moreover, the incumbent advantage quickly attenuates as the merchants repeat promotions over time. These countering forces appear to prevent this market from achieving a tipping equilibrium. Our findings thus help explain why different market structures arise in two-sided markets with network externalities.

Keywords: two-sided market; platform competition; cross-side network effects; online daily deals; reputation effect (search for similar items in EconPapers)
JEL-codes: D40 L10 M20 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2012-09
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-mkt and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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