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Source link: http://archive.mises.org/14027/groupon-another-market-success/

Groupon: Another Market Success

September 27, 2010 by

Groupon is a brilliant concept that uses social networking to mobilize shoppers and bring down prices. In contrast to all the mainstream economic models of “market failure,” Groupon is yet another example of market success. FULL ARTICLE by Robert P. Murphy

{ 51 comments }

Customers Union September 27, 2010 at 9:04 am

So you mean a customers union? Aren’t they “coercing” the retailers?

Joshua September 27, 2010 at 9:16 am

I get the gist of your barb there, but I feel like answering it seriously. No coercion exists in this case. When the customers don’t get their way (the deal doesn’t happen due to lack of interest) then the customers go on their merry way looking for the next deal. Now if they picketed the business, preventing anyone from purchasing anything from the vendor until he or she met their demands, then I would say they were coercing the retailers.

Curt Howland September 27, 2010 at 10:07 am

“you mean a customers union?”

Considering that the “groupons” are initiated BY THE RETAILER, I don’t see how you can call it a union at all.

It’s completely consensual. If I don’t want to buy X, I don’t have to pledge. If I don’t want to sell Y, I don’t make the “groupon” available for my product.

Voluntary interaction by interested individuals. Gee, that sounds a awful lot like the Free Market to me.

Customers Union September 27, 2010 at 10:30 am

And a workers union is completely consensual. If an employer doesn’t want to pay union wages, it is free to fire everyone and hire new people.

Curt Howland September 27, 2010 at 10:48 am

“it is free to fire everyone and hire new people.”

You obviously know nothing about how labor unions work.

Customers Union September 27, 2010 at 10:55 am

And you obviously know nothing about how corporations work. I guess since they get all sorts of government bailouts, subsidies, and protections, that they would operate in the same manner in a free market, if corporations (i.e. “limited liability” companies) even existed at all.

Curt Howland September 27, 2010 at 12:46 pm

“I guess since they get all sorts of government bailouts, subsidies, and protections”

Yep. That’s labor unions.

Customers Union September 27, 2010 at 12:57 pm

Really? Unions got $2 trillion in stimulus money? Unions get to print money and give it to themselves?

J. Murray September 27, 2010 at 1:58 pm

Read the Norris-LaGuardia Act and then tell me labor unions are voluntary.

Customers Union September 27, 2010 at 2:04 pm

As long as they have limited liability forced onto third parties, forced recognition of labor unions is nothing. Even if it bankrupts them, the owners can fuck their creditors and third parties they’ve harmed like they always do anyway.

Daniel September 29, 2010 at 11:53 pm

It’s amusing how your argumentation method is “hand-waving while ignoring the problems brought about by the coercive monopoly”

Martin OB September 27, 2010 at 9:57 am

Collective money pledges are a great alternative to copyrights (and other forms of IP) as a source of revenue for artists and scientists. They could release their works only after a monetary threshold is reached.

A few years ago there was a website called “Copycan”, whose purpose was exactly that. I’d love to see that kind of initiative gaining some traction.

Curt Howland September 27, 2010 at 10:08 am

I believe that Steven King did that. “Give me $50K, I’ll put the next chapter online.”

Jake_nonphixion September 27, 2010 at 10:18 am

Great point! The whole anti IP argument has never seemed so appealing to me. In this way innovators and creators of non-scarce goods would be able to receive adequate compensation for their efforts, without denying society the full benefit of their creation. The problem of diminished incentive to invent has disappeared!

Jay Lakner September 27, 2010 at 10:58 am

Actually, several anti-IPers have made similar suggestions before. But often these suggestions were dismissed as mere speculation, ie “guesses”, as to how a free market might work. Also it’s often difficult to locate these little gems of wisdom within the pages of aggressive debate that the IP topic seems to generate.

Scott D September 27, 2010 at 1:07 pm

Jay, that’s exactly the type of model that I advocate for book publishing, and which could easily be extended to music and movies. The idea seems radical only until you start deconstructing the process of creating and publishing content, and you come to realize that, besides the creation of content, the only parts of the process that cost any amount of time and money are editing, publishing-to-paper, and promotion. With publishing in this case meaning posting to a website with suitable bandwidth, it’s down to editing and promotion. I could see firms appearing that are analogous to current publishers and handle those two functions together or separately, or authors could choose different models entirely.

Robin September 27, 2010 at 10:44 am

I think you are cheering for Groupon’s model a little too early. While it’s easy to think that the restauranteur is charging “half-price” for her Groupon special lunch, it’s actually a “quarter-price” since Groupon takes up to a 50% cut on the deal price. You really are relying on those customers to return often and to tell others to make your money back (or if you have a fixed cost business, but your margin is significantly reduced nonetheless).

The big problem is customers are being trained to now only look for “deals” – significantly discounted services. When you speak to these people about their experiences, they are often happier to tell you about the discount they got, rather that the service itself.

Curt Howland September 27, 2010 at 10:52 am

“Groupon takes up to a 50% cut on the deal price.”

That’s an opportunity for competition!

Just like Facebook and Diaspora, abuse your customers and they will look elsewhere.

Rick September 27, 2010 at 12:46 pm

Robin,

Agreed. Mixed reviews on Groupon… another problem is blatant dishonesty, disregard of the Groupon rules, and borderline consumer fraud.

For example…

There are reports of people coming in with multiple coupons or expired coupons and demanding that they be “honored”. And people coming in without the coupons, saying they just bought it and they don’t want Groupon getting the 50% cut, but they want the discounted prices anyway.

Also, what about the customers who don’t use Groupon? Let’s say they’re regulars at a restaurant and then one day see half the non-regular lunch crowd paying half-price, but they have to pay full price? But they’re the long time customers… the core followers who have been supporting the business for awhile, unlike the Groupon crowd who is just there for a cheap bargain.

Either they’ll be turned off or they’ll start paying half price through Groupon too. It only works if the restaurant increases volume by at least 2x and gets additional “word of mouth” business. That could also become a customer retention problem because it could change the “culture” of the restaurant, i.e. coupon clipping bargain hunters versus a more affluent crowd.

That said, there are reports of business owners who are happy with it.

It’s a loss leader. Business owners are betting on future prosperity by giving something away for a discount now. Nothing new there. It will work for some, perhaps not for others. Profit will be the final judge for each business.

At the moment, it’s too new to say whether or not the Groupon model can be sustained as it is now. There are issues to be worked out. But I do like the initiative.

Matthew Swaringen September 27, 2010 at 1:26 pm

It does sound like their fees are pretty exorbitant if they approach 50%. If someone else creates a website doing the same thing with lower fees they’ll probably sue for some software patent infringement or something. It doesn’t make the idea any less legitimate, but I do wonder what would happen.

Kalim Kassam October 12, 2010 at 9:26 pm

Groupon has not been in my city very long, and already has two competitors.

Fephisto September 27, 2010 at 1:05 pm

Guys. Nothing is new here.

I believe in the finance world these things are referred to as ‘options’?

Groupon: Another Ponzi Scheme September 27, 2010 at 1:16 pm

Great. The last thing we need is more options on options on options on options on options on options on options on options on options on options, like what happened thanks to government sponsored malinvestment in real estate. Yes, 10 levels.

guard September 28, 2010 at 6:24 am

Yes, I like it. Put options on every meal at the restaurant for week, then stand outside the place selling meal coupons. Or give all the coupons to the Rabid Dogs motorcycle gang and then buy up even cheaper meal coupons after regular customers bail. Collateralized meal obligations – customers get one helping from each of several restaurants. All sorts of possibilities…

Groupon: Another Ponzi Scheme September 27, 2010 at 1:13 pm

Next level in this MLM Ponzi Scheme: a website that hooks people up with coupon sharing sites. Next level after that: a website that hooks people up with websites that hook people up with coupon sharing sites.

You know, the stores could just cut the prices to begin with.

Matthew Swaringen September 27, 2010 at 1:23 pm

Your argument makes no sense.

Groupon: Another Ponzi Scheme September 27, 2010 at 1:28 pm

Well, let’s say people haven’t heard about sites like groupon.com. So I can start a new site called Groupgroupon.com and take half of groupon.com’s (and other similar sites’) cut by referring people to them. But let’s say nobody ever heard of Groupgroupon.com. That means you can start a site called Groupgroupgroupon.com and take half of my (and other similar sites’) cut by referring people to me (and people running similar sites). Etc.

Joshua September 27, 2010 at 2:00 pm

Go for it. More power to you.

Rick September 27, 2010 at 5:52 pm

Ponzi,

I’m sure Groupon also secured the domain registration of anything remotely similar to groupon.com to protect their domain name. If not, their mistake. And what names they couldn’t register, well, what are the odds a competitor like that would be effective anyway? How would people find the copycat site? Those copycat’s still have to be skilled marketers and SEO savvy. That said, when there are a million potential bases to cover it’s impossible to cover all of them.

Matthew Swaringen September 27, 2010 at 9:08 pm

I understand your argument, but it’s still nonsense. Even though I think 50% sounds like a huge cut as well I think the market can decide what it wants and that you might see competitors for this same business model.

My only worry would be that groupon initiates some kind of protectionist law suit to defend the model, which would be another demonstration of the failure of government intervention.

John Doe September 27, 2010 at 4:26 pm

Well, I couldn’t help it! Take a look at the above link (Click on my name) . I started a campaign to start a Rothbardian State in Terra Nullius Africanus.Cheers

Let’s see if this works?

John Doe September 27, 2010 at 4:27 pm

That should have read link here: http://www.thepoint.com/campaigns/campaign-0-1054

John Doe September 27, 2010 at 4:27 pm
Martin OB September 27, 2010 at 4:46 pm

John, nice idea, but what makes you think this will end up better than the Republic of Minerva?
Well, maybe you can bribe Morocco, Mauritania and the Polisario front, but you’ll need much more money for that. Anyway … I wish you good luck!

John Doe September 27, 2010 at 5:07 pm

Certainly correct in your evaluation of the risks, and Minerva is a valid reference.

May need to drop the “Declaration of independence”, and make use of some woolly language to establish statehood.

Think I might need to bribe the inhabitants first, as they might perceive some risk in the proposal.

Martin OB September 27, 2010 at 5:09 pm

John, BTW, I understand what you mean, but many people will point out that a “Rothbardian State” is a contradiction in terms. What would the constitution be like? Will it have a dummy government (like the dummy King or Queen in modern democracies) or no government at all? In the latter case, wouldn’t that be an obstacle for international recognition?

If I had to draft something like a Rothbardian Constitution (and basic legislation), I think I would start with the conditions for individual homesteading, then enclosure of common areas, then secession, then noise and other nuisances. What do you have in mind?

John Doe September 27, 2010 at 5:53 pm

Well

Start with the “Social Contract” maybe

Establish a full democracy (with individual veto)?

John Doe September 27, 2010 at 6:18 pm

Martin,

Why don’t you join the campaign (no contribution required I think) and we continue the discussion there?

Martin OB September 27, 2010 at 6:34 pm

I’m a bit wary of giving my credit card number. Besides, my country is not available in the options :/

John Doe September 27, 2010 at 10:20 pm

I thought one could join without making a commitment, but I notice now that no,

These guys need to get paypal. I am also concerned about handing out CC details. Country doesn’t matter though, I stuck in UK and it swallowed it happily.

Martin OB September 28, 2010 at 4:54 am

How about a Facebook group?

John Doe October 8, 2010 at 1:44 pm

OK Martin,

Finally got around to it. Let’s see if it works.

Group is : New Rothbardian “State”

Brett in Manhattan September 28, 2010 at 1:43 am

This is a bit off topic, but, one thing about saving versus spending that confuses me.

Say, everyone saves 10% of their income. Then, banks can lend these deposits to businesses which can increase production.

Conversely, if everyone saves nothing, where does the money end up? Is it in a state of perpetual limbo?

Daniel September 29, 2010 at 11:52 pm

If “everyone” does not save, they are consuming without any additions to capital. They’re “eating their world”, like the stupid plot in Daybreakers

Martin OB September 28, 2010 at 4:28 am

Brett, to simplify we can assume gold coins as money, and make the quantity of money constant. Then, clearly, you have no way to tell how much people save by looking at the gold; it’s always the same amount of gold, distributed in different bank accounts (never “floating in limbo”). The difference is in the purchasing power of each gold coin. When people save, money increases its value, in terms of everything else.

Robert September 28, 2010 at 8:27 am

I’m wondering if this could really work at global level, of course except for the restaurant example that is limited to the local area? On the other hand, it is said that restrictions are made only by our own imagination, so maybe?

mlm home based business December 6, 2010 at 10:27 am

Great value post, especially with december 2010 still being a month of recession.

david December 23, 2010 at 12:05 pm

2011 is still recession in Europe

ks December 29, 2010 at 2:32 am

This sounds Austrian or libertarian: Groupon’s CEO said of his success in a Wall Street Journal interview -

Another was a broader lesson about the nature of do-gooder ventures. “One of the things I realized . . . is how few success stories there are in websites or products or businesses that exist primarily for an altruistic purpose. Most of the time, the things that really change the world exist for something fundamentally selfish and then the world-changing ends up being a side-effect of that. Whether its Facebook, Flickr, YouTube or Twitter, all those things have made the world better by the way that they allow people to share information. But that’s not why they were created. It was so they could share pictures and videos of scantily clad women or kittens or whatever. And Groupon’s the same way. And it caught me by surprise.”

Coup January 3, 2011 at 5:29 pm

“Groupon is yet another example of market success.”
I like the competition between retailers for business. I also like to see retailers make money.
How about using coupons? Using coupons and promo codes is an excellent way of saving money–that you can spend on something else you want! You make out, the store makes out, and the manufacturer does too.

Paul June 2, 2011 at 2:31 pm

I had signed up for the Groupon app on my iphone, to see what it was. What it was was annoying as hell and designed mainly as a way to scam me out of my money for products that I may or may not end up using. It appears that I have to pay for a coupon, RIGHT NOW. Groupon’s site does a very poor job of explaining how Groupon work or what the point is. I disconnected after about two weeks, and won’t consider using it unless it is transparent in how it works. It may be brilliant marketing, but they haven’t convinced me that I should give them my money for anything.

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