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

38 Pages Posted: 27 Jul 2012  

Byung-Cheol Kim

Georgia Institute of Technology

Jeongsik Lee

Drexel University - LeBow College of Business

Hyunwoo Park

Georgia Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: 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.

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

JEL Classification: D40, L10, M20

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: https://ssrn.com/abstract=2117790 or http://dx.doi.org/10.2139/ssrn.2117790

Byung-Cheol Kim (Contact Author)

Georgia Institute of Technology ( email )

Atlanta, GA 30332
United States

Jeongsik Lee

Drexel University - LeBow College of Business ( email )

3141 Chestnut Street
Philadelphia, PA 19104
United States

Hyunwoo Park

Georgia Institute of Technology ( email )

Atlanta, GA 30332
United States

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