【公开学术报告】When Should Restaurants Subsidize Online Platforms? The Impact of Delivery Agents

When Should Restaurants Subsidize Online Platforms? The Impact of Delivery Agents

(Rejected and Resubmitted by Manufacturing & Service Operations Management)

Guest Speaker:     Dr. Zhong CHEN (CUHK)

Date & Time:         14:00-15:30 (Beijing Time), Thur. 1st Dec. 2022

Zoom Meeting:     861 693 59851（Password: 550575）

Click the Link:     https://us02web.zoom.us/j/86169359851  

ABSTRACT

Problem definition: Restaurants can provide catering services to customers through the traditional offline channel or online food delivery platforms. Platforms claim they deserve to receive a positive commission fee from restaurants as they help restaurants expand their market and gain access to more customers. In contrast, some restaurants complain that platforms’ commission fees make it difficult to operate profitably. In this study, we are trying to identify when restaurants should offer such commission fees to subsidize food delivery platforms. Methodology/results: We build a game-theoretic model that accounts for the interactions among the four parties involved in a three-sided food delivery market, i.e., the restaurant, the platform, customers, and food delivery agents. Demands are assumed to be sensitive to both the price and delivery time. The objective of both the restaurant and the food delivery platform is to maximize their operating profits. We uncover conditions under which the restaurant should pay a commission fee to the platform. We show that a high wage rate for delivery agents makes the restaurant subsidize the platform, allowing it to post competitive service terms for online customers. We also investigate how the delivery agents’ self-scheduling characteristic affects all parties’ operational decisions. In particular, we show that the platform could benefit from an increase in the minimum wage for delivery agents as any increase in the minimum wage increases the efficient demand for each delivery agent. Interestingly, the restaurant is indifferent to changes in the minimum wage. Finally, while the restaurant usually implements surge pricing, the platform might reduce both its delivery fees and quoted lead time to dampen the effect of a surge in the restaurant’s food price. Managerial implications: Both the restaurant and the platform can benefit from a commission contract if the wage rate for delivery agents is not low. Platforms can benefit from an increase in the minimum wage as a higher minimum wage can motivate these agents to exert more delivery effort. The restaurant should implement surge pricing, while the platform should be mindful of implementing surge pricing.

Key words: three-sided markets; online food delivery platforms; self-scheduling agents; price and lead time competition