An economic analysis of on-demand food delivery platforms: Impacts of regulations and integration with ride-sourcing platforms

Abstract

This paper presents an economic analysis of on-demand food-delivery platforms and investigates management strategies that protect restaurant owners and for-hire gig workers in the sharing economy. We consider two markets that are both operated based on sharing economy: (a) the food-delivery market where a platform offers on-demand food-delivery services to customers; and (b) the ride-sourcing market where a platform provides on-demand ride-hailing services to passengers. These two markets are interdependent as the two platforms share the same pool of for-hire drivers. An economic equilibrium model is proposed to capture the incentives of food-delivery customers, ride-hailing passengers, restaurant owners, for-hire drivers, the food-delivery platform, and the ride-sourcing platform. The profit-maximizing decisions of each platform are modeled, and both competitive and collaborative interactions between the platforms are characterized. Based on the model, we first investigate the impacts of a cap on the commission rate charged to restaurant owners. We find that within certain regime the commission cap would benefit restaurants. However, beyond this regime, the commission cap becomes overly-protective, and further reducing it will induce increased costs for food-delivery customers, reduced earnings for food-delivery couriers, reduced profits of the food-delivery platform, which can even lead to slightly reduced earnings for the restaurants, making everyone worse off in the food-delivery market (compared to a less aggressive commission cap). Furthermore, we consider an alternative strategy where no regulatory intervention is necessary and the food-delivery and ride-sourcing services are integrally operated by a single platform. We show that collaboration between the two platforms can offer a Pareto improvement when the market demand of the ride-sourcing service is relatively small.