Is Daily Deal a Good Deal for Merchants? An Empirical Analysis of Economic Value in the Daily Deal Market

34 Pages Posted: 2 Jul 2015

See all articles by Chunhua Wu

Chunhua Wu

University of British Columbia (UBC) - Sauder School of Business

Yitian (Sky) Liang

Tsinghua University - School of Economics and Management

Xinlei Chen

University of British Columbia (UBC) - Sauder School of Business

Date Written: June 30, 2015

Abstract

The daily deals platform has become an important format in the online-to-offline (O2O) business model. However, questions have been raised over whether merchants really benefit from participating in daily deals, with some evidence suggesting that a significant number of merchants are losing money from them. In this paper, we address this question by quantifying the economic value of daily deals using a structural approach. Using data from the Chinese daily deals market, we find that merchants not only profit from daily deals, but also take the biggest share of the economic value created by them. However, the gain mainly comes from future revenue, with merchants typically incurring a loss during the promotion period. We also find that competition among platforms increases the merchant’s share of the economic value. Finally, we show that the competition in the current market is close to the optimal situation from a policy maker’s point of view.

Keywords: Daily Deals, Platform Competition, Value Creation

Suggested Citation

Wu, Chunhua and Liang, Yitian (Sky) and Chen, Xinlei, Is Daily Deal a Good Deal for Merchants? An Empirical Analysis of Economic Value in the Daily Deal Market (June 30, 2015). Available at SSRN: https://ssrn.com/abstract=2625901 or http://dx.doi.org/10.2139/ssrn.2625901

Chunhua Wu (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Yitian (Sky) Liang

Tsinghua University - School of Economics and Management ( email )

Wei Lun Building 543
Tsinghua University
Beijing, 100084
China

Xinlei Chen

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

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