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

Author

Listed:
  • 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.

Suggested Citation

  • Byung-Cheol Kim & Jeongsik Jay Lee & Hyunwoo Park, 2012. "Two-Sided Platform Competition in the Online Daily Deals Promotion Market," Working Papers 12-04, NET Institute.
    • Handle: RePEc:net:wpaper:1204
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    References listed on IDEAS

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    4. Marc Rysman, 2004. "Competition Between Networks: A Study of the Market for Yellow Pages," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 483-512.
    5. Roson Roberto, 2005. "Two-Sided Markets: A Tentative Survey," Review of Network Economics, De Gruyter, vol. 4(2), pages 1-19, June.
    6. Robert Seamans & Feng Zhu, 2010. "Technology Shocks in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers," Working Papers 10-11, NET Institute.
    7. Mark Armstrong Author-Email: mark.armstrong@ucl.ac.uk Author-Workplace-Name: University College of London, 2006. "Competition in Two-Sided Markets," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 668-691, Autumn.
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    Cited by:

    1. Jochen Reiner & Bernd Skiera, 2018. "Helping Merchants to Assess the Profitability of Deal-of-the-Day Promotions," Interfaces, INFORMS, vol. 48(3), pages 247-259, June.

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    More about this item

    Keywords

    two-sided market; platform competition; cross-side network effects; online daily deals; reputation effect;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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