Seller Organization and Percentage Fee Design in the Daily Deal Market

Motivated by the prosperity of the daily deal market, this paper investigates the interplay between a platform and sellers, wherein the platform selects a limited number of competing sellers from the seller pool to conduct daily deal campaigns under a certain organization format. We consider two prevalent seller organization formats in practice: one is the seller agglomeration strategy, under which the platform does not distinguish the sellers’ type when selecting them from the seller pool, and the other one is the seller segmentation strategy, under which the platform organizes sellers of the same type to compete in each round of the campaign. We show that different seller organization formats can significantly influence the platform’s and sellers’ pricing strategies, leading to adverse effects on the platform’s and sellers’ profitability. In comparison with the agglomeration strategy, the segmentation strategy eliminates internal information asymmetry between the sellers, which enables them to make more adequate pricing decisions and improves sales revenue. This result reversely incentivizes the platform to charge a higher percentage fee and thus obtain a higher profit. However, the increase in the percentage fee further decentralizes the vertical relationship between the platform and sellers; as a result, the sellers’ and system’s profits decrease under the segmentation strategy. We also examine alternative game settings based on heterogenous potential demand, consumer retention behavior, platform competition, percentage fee discrimination, and whether the number of competing sellers is endogenous and show that the main results are quite robust.

History: Ravi Bapna, Martin Bichler, Bob Day, and Wolfgang Ketter, Senior Editors; Bill Rand, Associate Editor. This paper has been accepted for the Information Systems Research Special Section on Market Design and Analytics

Funding: Y. Tang received financial support from the National Natural Science Foundation of China [Grants 72101271 and 71701212]. X. Guan received financial support from the National Natural Science Foundation of China [Grants 71922010, 71821001, and 7191101004].

Supplemental Material: The online appendices are available at https://doi.org/10.1287/isre.2021.1070.