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

Jul 02 2015

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  • Under review at Management Science.
  • Co-authored with Yitian(Sky) Liang and Xinlei(Jack) Chen.

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, Economic Value

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