Seller Organization and Percentage Fee Design in the Daily Deal Market

Abstract

The prosperity of the daily deal business has attracted more sellers to participate in daily deal campaigns with offering discounted deals via online platforms like Groupon and Juhuasuan. This gives rise to a new challenge for online platforms on how to efficiently organize a limited number of sellers to conduct daily deal campaigns. Our paper makes the first attempt to understand how different seller organization formats can influence the firms’ equilibrium strategies and profits in the daily deal market. We focus on two prevalent seller organization formats. (1) The seller agglomeration strategy: the platform (e.g., Groupon) does not distinguish the sellers’ type in each round of the campaign. (2) The seller segmentation strategy: the platform (e.g., Juhuasuan) organizes sellers of the same type in each round. Comparing to the agglomeration strategy, we show that the segmentation strategy can eliminate internal information asymmetry among competing sellers and thus can improve the sellers’ pricing efficiency and facilitate the platform to charge a higher percentage fee. This uncovers the value of seller segmentation and theoretically explains why platforms should carefully segmentate sellers in daily deal campaigns, although considerable efforts are required to enroll sellers.

Seller promotion and competition on decentralized two-sided platforms

“…Sun et al (2020) studied the effectiveness of two popular advertising toolssponsored search and social media endorsementin increasing traffic and sales for online sellers with low and high reputations on a retail e-commerce platform. Tang and Guan (2022) considered two prevalent seller organization formats in the daily deal market and how these influence the platform's and sellers' pricing strategies and profitability. In this paper, we consider sellers with different conversion rates and browsing costs who compete with each other using promotion efforts.…”

Digital Platform Strategy - A Systematic Critical Review

“…Chen et al (Chen et al, 2016) evaluate the factors that influence the choice between advertising and brokerage model in ecommerce and suggest that advertising space availability and the probability of matching buyers and sellers influence the choice of the business model. Tang and Guan (Tang & Guan, 2021) examine the effects of provider homogeneity on optimal pricing in daily deal platforms and find that greater degree of provider heterogeneity improves platform profitability.…”

“…Kwark et al (Kwark et al, 2013) report that availability of third-party information can affect the choice of the business model. Tang and Guan (Tang & Guan, 2021) show that segmentation can improve the profitability in the context of daily deal platforms. Chen et al (Chen et al, 2016) show that available digital assets and likelihood of cross-side matching can influence the choice between advertising and brokerage model in the e-commerce context.…”

“…G. Parker & Van Alstyne, 2005). To the extent that a given context supports multiple competing digital platforms, the use of pricing (Tang & Guan, 2021), non-monetary incentives (W. Song et al, 2021), (Sun et al, 2021), (Gong et al, 2021), (Foerderer et al, 2021), matching algorithms (Kannan et al, 2021), and information provisioning (Zhang et al, 2021), (Huang et al, 2018) can afford a strategic advantage to a given platform. This is a rather different set of choices from the considerations in traditional strategy formulation (Hambrick & Fredrickson, 2005).…”

The impact of online referral services on cooperation modes between brander and platform

“…Song et al (2020) [32] analyze the product line selection of third-party sellers on the platform and how the spillover effect affects sellers' motivation to join the platform and the platform's openness decision. Tang & Guan (2021) [37] focus on a daily deal market where the platform selects a limited number of competing sellers to conduct daily deal campaigns under a certain organization format. Different from the above research, we focus on the dual decision of a brander with the online direct channel, that is, whether to enter the platform to develop a marketplace channel and whether to adopt the online referral service provided by the platform.…”