The three-sided market of on-demand delivery

Abstract

On-demand delivery services are three-sided markets that enable interactions between customers and suppliers with the help of crowdsourced drivers. Customers and suppliers may pay a commission to gain access to the service and drivers are granted a wage for providing their delivery service. This study characterizes the properties of three-side on-demand delivery markets, and proposes pricing strategies that enable the platform to manipulate the market towards profit or social welfare maximizing outcomes. We consider earning-sensitive independent drivers, price-and-time-sensitive customers, and price-sensitive suppliers. By assuming that all players are heterogeneous in their valuation of the service, we model their numbers as endogenously dependent on the price, wage, and commission of the platform. We also use the continuum approximation of the vehicle routing problem to derive customer waiting times. Our analyses show that suppliers internalize a portion of the driver wage, and the customers internalize the supplier commission. However, the platform requests lower commissions and offers a higher wage in social welfare maximization compared to profit maximization, which yields a negative profit for the platform in social welfare maximization. Moreover, we validate the results of the analytical model with numerical experiments on more realistic cases.