Abstract

http://ssrn.com/abstract=2117790
 
 

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


Byung-Cheol Kim


Georgia Institute of Technology

Jeongsik Lee


Georgia Institute of Technology - College of Management

Hyunwoo Park


Georgia Institute of Technology

July 1, 2012


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.

Number of Pages in PDF File: 38

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

JEL Classification: D40, L10, M20

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Date posted: July 27, 2012  

Suggested Citation

Kim, Byung-Cheol and Lee, Jeongsik and Park, Hyunwoo, Two-Sided Platform Competition in the Online Daily Deals Promotion Market (July 1, 2012). Available at SSRN: http://ssrn.com/abstract=2117790 or http://dx.doi.org/10.2139/ssrn.2117790

Contact Information

Byung-Cheol Kim (Contact Author)
Georgia Institute of Technology ( email )
Atlanta, GA 30332
United States
Jeongsik Lee
Georgia Institute of Technology - College of Management ( email )
800 West Peachtree St., NW
Atlanta, GA 30308-1149
United States
Hyunwoo Park
Georgia Institute of Technology ( email )
Atlanta, GA 30332
United States
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