Abstract

http://ssrn.com/abstract=1727508
 
 

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To Groupon or Not to Groupon: The Profitability of Deep Discounts


Benjamin G. Edelman


Harvard University - HBS Negotiations, Organizations and Markets Unit

Sonia Jaffe


Harvard University - Department of Economics

Scott Duke Kominers


Harvard University

February 3, 2014

Marketing Letters, Forthcoming

Abstract:     
We examine the profitability and implications of online discount vouchers, a relatively new marketing tool that offers consumers large discounts when they prepay for participating firms' goods and services. Within a model of repeat experience good purchase, we examine two mechanisms by which a discount voucher service can benefit affiliated firms: price discrimination and advertising. For vouchers to provide successful price discrimination, the valuations of consumers who have access to vouchers must generally be lower than those of consumers who do not have access to vouchers. Offering vouchers tends to be more profitable for firms which are patient or relatively unknown, and for firms with low marginal costs. Extensions to our model accommodate the possibilities of multiple voucher purchases and firm price re-optimization. Despite the potential benefits of online discount vouchers to certain firms in certain circumstances, our analysis reveals the narrow conditions in which vouchers are likely to increase firm profits.

Number of Pages in PDF File: 24

Keywords: Voucher Discounts, Groupon, Experience Goods, Repeat Purchase.

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Date posted: December 18, 2010 ; Last revised: July 30, 2014

Suggested Citation

Edelman, Benjamin G. and Jaffe, Sonia and Kominers, Scott Duke, To Groupon or Not to Groupon: The Profitability of Deep Discounts (February 3, 2014). Marketing Letters, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1727508 or http://dx.doi.org/10.2139/ssrn.1727508

Contact Information

Benjamin G. Edelman (Contact Author)
Harvard University - HBS Negotiations, Organizations and Markets Unit ( email )
Soldiers Field
Boston, MA 02163
United States
HOME PAGE: http://people.hbs.edu/bedelman
Sonia Jaffe
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
Scott Duke Kominers
Harvard University ( email )
One Brattle Square, suite 6
Cambridge, MA 02138
United States
HOME PAGE: http://www.scottkom.com/
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