Two-Sided Platform Competition in the Online Daily Deals Promotion Market
AbstractWe 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 InfoPaper provided by NET Institute in its series Working Papers with number 12-04.
Length: 37 pages
Date of creation: Sep 2012
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Web page: http://www.NETinst.org/
two-sided market; platform competition; cross-side network effects; online daily deals; reputation effect;
Find related papers by JEL classification:
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- M20 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-13 (All new papers)
- NEP-BEC-2012-10-13 (Business Economics)
- NEP-COM-2012-10-13 (Industrial Competition)
- NEP-IND-2012-10-13 (Industrial Organization)
- NEP-MKT-2012-10-13 (Marketing)
- NEP-NET-2012-10-13 (Network Economics)
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