When Discounts Hurt Sales: The Case of Daily-Deal Markets

We investigate whether the discounts offered by online daily deals help attract consumer purchases. By tracking the sales of 19,978 deals on Groupon.com and conducting a battery of identification and falsification tests, we find that deep discounts reduce sales. A one-percent increase in a deal's discount decreases sales by 0.035--0.256 percent. If a merchant offers 10 percent more discount from the sample mean of 55.6 percent, the sales could decrease by 0.63--4.60 percent, or 0.80--5.24 units and $42--$275 in revenue. This negative effect of discount is more prominent among credence goods and deals with low sales, and when the deals are offered in cities with higher income and better education. Our findings suggest that consumers are concerned about product quality and excessive discounts may reduce sales immediately. A follow-up lab experiment provides further support to this quality concern explanation. Furthermore, it suggests the existence of a "threshold", viz. the negative effect on sales is present only when the discount is sufficiently high. Additional empirical analysis shows that deals displaying favorable third-party support, such as Facebook fans and online reviews, are more susceptible to this adverse discount effect. We draw related managerial implications

An Economic Analysis of Peer-Disclosure in Online Social Communities

We study a novel privacy concern, viz. peer disclosure of sensitive personal information in online social communities. We model peer disclosure as imposing a negative externality on other people. Our model encompasses the benefits from posting information, positive externalities such as recognition and entertainment benefits due to others' sharing of information, and heterogeneous privacy preferences. We find that regulation of peer disclosure is necessary. We consider two candidate regulations -- nudging and quota. Nudging reduces user participation and privacy harm and sometimes improve social welfare. By contrast, imposing a quota often improves user participation, privacy protection and social welfare. Adding a nudge on top of a quota does not bring additional benefits. We show that any regulation that uniformly controls the disclosure of sensitive and nonsensitive information will not serve the triple objectives of reducing privacy harm, increasing social welfare, and increasing information contribution. We derive a necessary condition for solutions that can fulfill these three objectives. We also compare the incentives of the platform owner and social planner and draw related managerial and policy implications

When Discounts Hurt Sales: The Case of Daily-Deal Markets

We investigate whether the discounts offered by online daily deals help attract consumer purchases. By tracking the sales of 19,978 deals on Groupon.com and conducting a battery of identification and falsification tests, we find that deep discounts reduce sales. A one-percent increase in a deal's discount decreases sales by 0.035--0.256 percent. If a merchant offers 10 percent more discount from the sample mean of 55.6 percent, the sales could decrease by 0.63--4.60 percent, or 0.80--5.24 units and $42--$275 in revenue. This negative effect of discount is more prominent among credence goods and deals with low sales, and when the deals are offered in cities with higher income and better education. Our findings suggest that consumers are concerned about product quality and excessive discounts may reduce sales immediately. A follow-up lab experiment provides further support to this quality concern explanation. Furthermore, it suggests the existence of a "threshold", viz. the negative effect on sales is present only when the discount is sufficiently high. Additional empirical analysis shows that deals displaying favorable third-party support, such as Facebook fans and online reviews, are more susceptible to this adverse discount effect. We draw related managerial implications

When Discounts Hurt Sales: The Case of Daily-Deal Markets

textabstractWe investigate whether the discounts offered by online daily deals help attract consumer purchases. By tracking the sales of 19,978 deals on Groupon.com and conducting a battery of identification and falsification tests, we find that deep discounts reduce sales. A one-percent increase in a deal's discount decreases sales by 0.035--0.256 percent. If a merchant offers 10 percent more discount from the sample mean of 55.6 percent, the sales could decrease by 0.63--4.60 percent, or 0.80--5.24 units and $42--$275 in revenue. This negative effect of discount is more prominent among credence goods and deals with low sales, and when the deals are offered in cities with higher income and better education. Our findings suggest that consumers are concerned about product quality and excessive discounts may reduce sales immediately. A follow-up lab experiment provides further support to this quality concern explanation. Furthermore, it suggests the existence of a "threshold", viz. the negative effect on sales is present only when the discount is sufficiently high. Additional empirical analysis shows that deals displaying favorable third-party support, such as Facebook fans and online reviews, are more susceptible to this adverse discount effect. We draw related managerial implications

The Relationship Between Online Referral Marketing and Price Promotion: Evidence from a Large E-Commerce Platform

Journal of Management Information System

The Relationship Between Online Referral Marketing and Price Promotion: Evidence from a Large E-Commerce Platform

10.1080/07421222.2021.1962597Journal of Management Information Systems383855-88