New Research Sheds Light on Bargaining and the Three-Way Transaction that Defines the Daily Deal Market

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Researchers studied the relationships in between day-to-day deal platforms, customers and merchants

Researchers from the University of Maryland and Harvard University evaluated the bargaining procedure between those everyday deal platforms and merchants to determine the trade-offs both parties in the deal can make to achieve their goals. While merchants may have less take advantage of and sacrifice certain net revenues for the brief term when selling their products or services on the larger platforms, they can win in the long run by adding new clients and producing the opportunity for future sales to a larger consumer base.

The research study, to be released in the July edition of the INFORMS journal Marketing Science, is titled Price Bargaining and Competition in Online Platforms: An Empirical Analysis of the Daily Deal Market. It is authored by Lingling Zhang of the University of Maryland and Doug J. Chung of Harvard University.

CATONSVILLE, MD, Aug. 7, 2020— If you’ve ever benefited from a good discount rate thanks to a promotion from Groupon or LivingSocial, you’ve tapped the power of the day-to-day deal market for yourself. You, the consumer, gained from the previous bargaining that happened in between that huge online platform and the merchant, resulting in a lower cost for you.

Secret Takeaways:

“We concentrated on price bargaining and platform competitors,” stated Zhang. “We asked 2 concerns. What are the factors of prices setting and earnings splitting between platforms like Groupon and LivingSocial and their providers? And, to what level does price bargaining impact competitors and market outcomes?”

The research study authors said that another factor why having a smaller sized platform in the market is advantageous for merchants is that it supplies an alternative outlet for their offers. In the lack of competition from the underdog platform, the bigger platform can utilize its bargaining power to work out a lower wholesale rate, increasing its offer revenues. The bigger platform passes a few of the discount rate onto the market price; hence, the platform and customers gain, at the cost of merchants.

To address those concerns, the research study authors used data from the U.S. everyday deal market with a specific focus on the Groupon and LivingSocial platforms. They sell an everyday variety of discounted goods and services, and in doing so, they link regional merchants with customers.

“On the need side, consumers make a multistage choice,” stated Chung. “They first choose the deal platform, and then they select which deal to purchase. On the supply side, platforms and merchants negotiate terms. The platform thinks about not only just how much profits can be produced from each deal, however also the degree to which the deal can help grow its client base. For the merchant, it examines both the existing deal profits and the future reward by maintaining the recently gotten customers.”

“We compared Groupon, the larger online platform, to LivingSocial, the smaller one, and found that LivingSocial can compensate for its smaller sized size by offering greater share of profit to merchants,” said Zhang. “For some merchants, the tradeoff works in a manner in which choosing the smaller daily deal platform can be an efficient method to make the most of revenues.”

  • Larger daily offer platforms with larger customer markets can put in more bargaining power during settlement.
  • Merchants can build their own businesses by choosing the ideal day-to-day deal platforms. Merchants’ choice of a platform depends upon their qualities and the consumer base of the platform.
  • Underdog platforms help merchants by providing an alternative outlet in price settlement.

The scientists found that, while smaller platforms can not use access to a customer market along with bigger platforms, they are prepared to leave more space for merchants on earnings splitting. The long-term results of working with smaller sized platforms can be better for some merchants.

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Contact: Tim O’Brien, timobrien@timobrienpr!.?.!

Researchers from the University of Maryland and Harvard University analyzed the bargaining process between those day-to-day offer platforms and merchants to determine the compromises both celebrations in the transaction can make to achieve their goals. Merchants can build their own organisations by choosing the ideal everyday deal platforms. The researchers discovered that, while smaller sized platforms can not provide access to a customer market as well as larger platforms, they are ready to leave more room for merchants on earnings splitting. The study authors said that another reason why having a smaller sized platform in the market is helpful for merchants is that it supplies an alternative outlet for their deals. In the lack of competition from the underdog platform, the larger platform can take advantage of its bargaining power to work out a lower wholesale cost, increasing its deal earnings.

Marketing Science is a leading peer-reviewed academic marketing journal concentrated on research study utilizing quantitative techniques to study all elements of the interface in between firms and consumers. It is published by INFORMS, the prominent worldwide association for operations research study and analytics specialists. More info is available at www.informs.org or @informs.

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