Start Date
12-16-2013
Description
With the advent of Groupon.com in 2008, daily deal platforms have seen phenomenal growth. Surprisingly there is very sparse analytical research that has studied the economics of the daily deal platforms that they connect merchants to consumers. We develop a stylized two-period Stackelberg leader-follower game-theoretic model to analyze the strategic interaction between heterogeneous merchants and a daily-deal website. The monopolist daily deal website is revenue maximize. Merchants take into consideration the sampling, advertising and cannibalization effects when they decide participation and discount strategy on the daily-deal website. Our result shows the merchants offer higher discount rates on the daily deal website and less known merchants benefit more from offering deals on the daily deal website. Some of the merchants never offer a deal on the platform even if offering a deal on the platform is free.
Recommended Citation
Shivendu, Shivendu and Zhang, Zhe, "Economics of Daily-deal Websites: Advertising and Sampling Effects" (2013). ICIS 2013 Proceedings. 19.
https://aisel.aisnet.org/icis2013/proceedings/EconomicsOfIS/19
Economics of Daily-deal Websites: Advertising and Sampling Effects
With the advent of Groupon.com in 2008, daily deal platforms have seen phenomenal growth. Surprisingly there is very sparse analytical research that has studied the economics of the daily deal platforms that they connect merchants to consumers. We develop a stylized two-period Stackelberg leader-follower game-theoretic model to analyze the strategic interaction between heterogeneous merchants and a daily-deal website. The monopolist daily deal website is revenue maximize. Merchants take into consideration the sampling, advertising and cannibalization effects when they decide participation and discount strategy on the daily-deal website. Our result shows the merchants offer higher discount rates on the daily deal website and less known merchants benefit more from offering deals on the daily deal website. Some of the merchants never offer a deal on the platform even if offering a deal on the platform is free.