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“Dynamic Platform Competition in a Two-Sided Market”

“Dynamic Platform Competition in a Two-Sided Market”. Byung-Cheol Kim, Jeongsik Lee, Hyunwoo Park. Discussion Pedro Gardete (Stanford GSB). NET Institute: June 7, 2013. Research Questions. Understand how a two-sided market platform follower can penetrate the market

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“Dynamic Platform Competition in a Two-Sided Market”

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  1. “Dynamic Platform Competition in a Two-Sided Market” Byung-Cheol Kim, Jeongsik Lee, Hyunwoo Park Discussion Pedro Gardete (Stanford GSB) NET Institute: June 7, 2013

  2. Research Questions • Understand how a two-sided market platform follower can penetrate the market • Possible focus: Consumers or Merchants • What is the value of a poached agent to entrant? • How do the dynamics affect the interaction of firms?

  3. Duopoly Market • Beautiful Dataset: • Data: All deals (focus on July 2009 to October 2011) • 143,525 observations • Sales • Deal Conditions: Price, Value, Discount Rate • Deal Category • Geographic Location Est. 2009 Est. 2008

  4. Groupon and LS Deals seemequivalent to Customers

  5. Competition on Consumer Side • : Discount, Value, Price [p=v(1-d)]

  6. Intuition: Competitive Bottlenecks Multi-Home Single-Home

  7. Competition on Merchant Side • k={poached, own} • Poached = 1 if merchant had at least one prior deal with rival platform.

  8. Competition on Merchant Side • k={poached, own} • Poached = 1 if merchant had at least one prior deal with rival platform.

  9. Discussion • Theoretical background

  10. Competitive Bottlenecks Multi-Home Single-Home

  11. Discussion 2. Identifying Merchant Poaching

  12. Poaching and Merchant Heterogeneity • Poached = 1 if merchant had at least one prior deal with rival platform. • Alternative assumption: Larger merchants are more likely to contract with both platforms • Result: • Poached Groupon merchants big • Poached LS merchants even bigger • Would hold even if LS was targeting merchants randomly

  13. Preston’s Candy is Multihoming

  14. Poaching and Market Growth • Poached = 1 if merchant had at least one prior deal with rival platform. • Some clues pointing to market growth: • First Deal (Discount<0, Value > 0, Price >0) • Value of Deals increases $10 in a year • Price increases $3.5/deal in a year • Merchant more likely to be poached as time elapses (by definition) • Value of poached merchant may be driven by market expansion

  15. Discussion 3. Some Ideas

  16. Some Ideas: Customer Poaching • Investigate absence of end-customer poaching further: • Pretty mysterious! (Theory does not explain it fully) • More deals at 50% discount vs. 60%? • Deeper discounts in popular categories for LS?

  17. Some Ideas: Market Size • Measuring profitability of poached merchants: • Consider growth over time (trends may be more important than year and month fixed effects) • Introduce “before” period to identify Groupon competitive reaction • Extend analysis to markets where LS has not yet entered

  18. Some Ideas: Merchant Poaching • Poaching or Multihoming? • Distinguish from ‘random’ case • Would like to analyze “conversion” cases • Control for “simultaneous” deals (multihoming) • Sensitivity Analysis

  19. Thank You

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