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http://ssrn.com/abstract=2164341
 
 

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Dynamic Platform Competition in a Two-Sided Market: Evidence from the Online Daily Deals Promotion Industry


Byung-Cheol Kim


Georgia Institute of Technology

Jeongsik Lee


Georgia Institute of Technology - College of Management

Hyunwoo Park


Georgia Institute of Technology

February 12, 2013

NET Institute Working Paper No. 12-04

Abstract:     
We empirically study a dynamic platform competition in the online daily deals promotion industry characterized by intense rivalry between two leading promotion sites, Groupon and LivingSocial, that broker between local merchants and local consumers. We find that, for a comparable deal, the incumbent Groupon enjoys a significant advantage in performance measured in the number of coupon sales, which appears largely attributable to its greater network size in the consumer side. Yet LivingSocial successfully enters and quickly increases penetration in this market. We find no evidence that LivingSocial offers consumers more favorable terms on their deals than Groupon. Instead, on the merchant side, we find that LivingSocial poach merchants from Groupon, aided by the publicly available information on individual merchants and deal performance. Poached deals generate greater and more predictable coupon sales than the deals developed internally. While information-based poaching provides a foothold for the entrant in overcoming the initial size disadvantage, over time it turns into a competition-intensifying channel, as Groupon reacts by the same poaching strategy. Our study shows how platforms compete dynamically in a two-sided market with open information structure, thereby complements prior theoretical developments for multi-sided markets.

Number of Pages in PDF File: 44

Keywords: two-sided market, platform competition, online daily deals, merchant poaching

JEL Classification: D40, L10, M20

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Date posted: October 24, 2012 ; Last revised: September 6, 2013

Suggested Citation

Kim, Byung-Cheol and Lee, Jeongsik and Park, Hyunwoo, Dynamic Platform Competition in a Two-Sided Market: Evidence from the Online Daily Deals Promotion Industry (February 12, 2013). NET Institute Working Paper No. 12-04. Available at SSRN: http://ssrn.com/abstract=2164341 or http://dx.doi.org/10.2139/ssrn.2164341

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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