Present Bias and Quality Reduction on Daily Deal Platforms

Stefano Galavotti and Gioele Massaro

International Journal of Economics and Finance, 2023, vol. 15, issue 12, 39

Abstract: We study daily deal markets, i.e. platforms where sellers, called merchants, offer coupons for their products at a heavily discounted price for a short time window. Inspired by the evidence that both merchants and customers are often unsatisfied with their experiences with daily deals, we setup a two-period model that reconciles such evidence. In the first period, the merchant sells the coupons at the (low) price imposed by the platform and can choose the quality of its product, which is unobserved by the consumers. In the second period, when the deal period has expired and the merchant is free to set the selling price, first-period customers purchase again only if they were satisfied with the quality of the product. Our crucial result is that, if the merchant has present biased preferences, the daily deal market exacerbates the risk that the merchant provides a low quality product, even though, at the beginning of the daily deal campaign, the merchant was fully aware that only a high quality product would have made the campaign profitable. We also show that it might be in the interest of the platform to set a higher price for the coupons, as this would reduce the risk of having low quality products sold on the platform, avoiding negative reputational effects.

Date: 2023
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ccsenet.org/journal/index.php/ijef/article/download/0/0/49456/53406 (application/pdf)
https://ccsenet.org/journal/index.php/ijef/article/view/0/49456 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ibn:ijefaa:v:15:y:2023:i:12:p:39

Access Statistics for this article

More articles in International Journal of Economics and Finance from Canadian Center of Science and Education Contact information at EDIRC.
Bibliographic data for series maintained by Canadian Center of Science and Education ().