Local Market Characteristics and Online-to-Offline Commerce: An Empirical Analysis of Groupon

Management Science, Forthcoming.

42 Pages Posted: 9 Apr 2016 Last revised: 24 Sep 2016

See all articles by Hui Li

Hui Li

Carnegie Mellon University

Qiaowei Shen

University of Pennsylvania - Marketing Department

Yakov Bart

Northeastern University - D'Amore-McKim School of Business

Date Written: August 21, 2016

Abstract

We investigate the factors that affect the growth of Groupon, the leading online daily deals platform. We concentrate on the online-to-offline (O2O) aspect of the business that differentiates it from other e-commerce platforms - its strong connection to local markets. We focus on travel cost and store density, the key local characteristics that affect consumer deal demand and merchant deal offering. Using a comprehensive longitudinal data set on deal offerings and sales across local markets and combining it with local market characteristics, we estimate a simultaneous equation model of the weekly number of deal offerings and deal sales characterizing the two-sided nature of the platform. We find that the word-of-mouth effect on the consumer side and the observational learning effect on the merchant side contribute to and reinforce the expansion of a two-sided platform. However, a larger number of deals intensifies the competition, which then lowers per deal sales and limits the number of deal offerings. We find that local characteristics have significant impact on both the deal demand and supply side. We further use model simulation to show how differences in growth patterns across markets may be driven by local characteristics, and decompose their relative impact on the demand and supply side. The paper provides managerial implications for firms specializing in O2O commerce.

Keywords: Groupon, daily deals industry, O2O, two-sided platform

Suggested Citation

Li, Hui and Shen, Qiaowei and Bart, Yakov, Local Market Characteristics and Online-to-Offline Commerce: An Empirical Analysis of Groupon (August 21, 2016). Management Science, Forthcoming.. Available at SSRN: https://ssrn.com/abstract=2760687 or http://dx.doi.org/10.2139/ssrn.2760687

Hui Li (Contact Author)

Carnegie Mellon University ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Qiaowei Shen

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States

Yakov Bart

Northeastern University - D'Amore-McKim School of Business ( email )

Boston, MA 02115
United States

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