Balance between profit and fairness: Regulation of online food delivery (OFD) platforms

Abstract

The rapidly developing online food delivery business is a novel “ecosystem” involving digital platforms, restaurants, delivery-workers, and customers. Continuous expansion of its market size is accompanied by problems of economic fairness such as “wage distribution” and “revenue sharing”. This study proposes an overall modeling framework to examine how regulators could best achieve optimal regulatory balance between “protecting the restaurant margins” and “protecting the interests of delivery-workers” in both monopoly and duopoly competition environments. We show that wage floor regulation can benefit delivery-workers under certain conditions but come at the expense of the ecosystem's other stakeholders. By contrast, a policy of commission cap could increase both restaurants' revenues and the ecosystem's overall welfare. The results of this study provide feasible insights for improving the regulatory effectiveness of digital platforms in fast-evolving businesses such as prepared food delivery.