First Version: Oct 2014

Updated: Mar 2016

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The Economic Value of Daily Deals: An Empirical Quantification

Abstract

In this paper, we empirically quantify the short term and long term profitabilities of daily deal promotions and investigate the role of revenue sharing and platform competition in determining the profits. To achieve this, we build a structural empirical framework to model the strategic decisions made by the platforms, vendors as well as consumers. Our results show that daily deals serve as loss-leaders for vendors where most of them would incur a negative profit in the promotional period while expect to gain a substantial profit in the subsequent periods from returning customers. The degree of long term profitability varies across platforms and over periods. Overall, daily deal promotions generate positive welfare for platforms, vendors as well as consumers. Policy simulations reveal that alleviating platform competition by committing to a fixed revenue sharing percentage would increase the welfare of platforms and consumers, but at the cost of local businesses.

Keywords: Daily Deals, Platform Competition, Economic Value