Strategic Revenue Sharing With Daily Deal Sites: A Competitive Analysis

Keywords

Daily Deals; Nash Bargaining; Pricing; Promotions

Abstract

Promoting through daily deal sites has become popular in the past few years. Groupon is perhaps the best known provider of these promotions (also known as online discount vouchers) to customers. Daily deals differ from traditional coupons on three important dimensions: (i) They are not offered to consumers directly by firms but are offered through an intermediary, (ii) the promotional depth offered by these localized promotions tends to be higher, and (iii) consumers prepay for the discount vouchers, and then the daily deals site reimburses the retailer a prespecified negotiated percentage of each paid voucher. In this study, we build a theoretical model to explore the profitability of undertaking a daily deals campaign by firms. Our analysis identifies the role of types of consumers in the market, relative bargaining power of the local firms, revenue sharing agreements, and market characteristics, such as degree of product substitutability and extent of competition, on the profitability attained through daily deal promotions. Surprisingly, when demand spillovers exist, an asymmetric outcome, with one firm offering an online discount voucher and the competing firm not offering an online discount voucher, is an equilibrium under some conditions.

Publication Date

12-1-2017

Publication Title

Decision Sciences

Volume

48

Issue

6

Number of Pages

1228-1261

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1111/deci.12253

Socpus ID

85038021560 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/85038021560

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