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

44 Pages Posted: 24 Oct 2012 Last revised: 6 Sep 2013

See all articles by Byung-Cheol Kim

Byung-Cheol Kim

University of Alabama

Jeongsik Lee

Drexel University - LeBow College of Business

Hyunwoo Park

Seoul National University, Graduate School of Data Science

Multiple version iconThere are 2 versions of this paper

Date Written: February 12, 2013

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.

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

JEL Classification: D40, L10, M20

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: https://ssrn.com/abstract=2164341 or http://dx.doi.org/10.2139/ssrn.2164341

Byung-Cheol Kim (Contact Author)

University of Alabama ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States
7708462727 (Phone)
7708462727 (Fax)

HOME PAGE: http://bkim.people.ua.edu/

Jeongsik Lee

Drexel University - LeBow College of Business ( email )

3141 Chestnut Street
Philadelphia, PA 19104
United States

Hyunwoo Park

Seoul National University, Graduate School of Data Science ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

HOME PAGE: http://https://hyunwoopark.com

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