Two-sided platform competition with multihoming agents: An empirical study on the daily deals market

The Internet and mobile revolutions gave birth to many information-based platforms that have low entry costs with highly imitable business models. Exploiting granular deal-level data, we empirically study the U.S. daily deals promotion market, characterized by frequent multihoming of consumers and merchants leading to intense competition in over 150 regional markets between two major platforms, Groupon and LivingSocial. Consistent with the competitive pressure due to prevalent multihoming on the consumer side, we find little inter-platform difference in deal terms such as discount rate, price and value offered to consumers. On the merchant side, merchants that performed worse in the first promotion were more likely to switch to a competing platform for the next promotion. However, such platform switching brought little improvement in coupon sales in the subsequent promotion, particularly when the merchant switched from the market leader to a newer platform. Being first in a regional market provided an advantage to the platform in coupon sales, but that advantage quickly attenuated as promotions were repeated. Thus, in the presence of multihoming agents, the daily deal platforms appear to find it difficult to create a competitive bottleneck in either side of the market. The insight from our findings can be extended to other infomediary platform markets.