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

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  • Byung-Cheol Kim

    ()
    (School of Economics, Georgia Institute of Technology)

  • Jeongsik "Jay" Lee

    ()
    (Scheller College of Business, Georgia Institute of Business)

  • Hyunwoo Park

    ()
    (School of Industrial and System Engineering)

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.

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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 12-04.

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Length: 37 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:net:wpaper:1204

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Web page: http://www.NETinst.org/

Related research

Keywords: two-sided market; platform competition; cross-side network effects; online daily deals; reputation effect;

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  1. repec:rje:randje:v:37:y:2006:3:p:668-691 is not listed on IDEAS
  2. Roson Roberto, 2005. "Two-Sided Markets: A Tentative Survey," Review of Network Economics, De Gruyter, vol. 4(2), pages 1-19, June.
  3. repec:rje:randje:v:37:y:2006:3:p:720-737 is not listed on IDEAS
  4. Kenneth C. Wilbur, 2008. "A Two-Sided, Empirical Model of Television Advertising and Viewing Markets," Marketing Science, INFORMS, vol. 27(3), pages 356-378, 05-06.
  5. Marc Rysman, 2004. "Competition Between Networks: A Study of the Market for Yellow Pages," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 483-512.
  6. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
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