Will dynamic pricing outperform? Theoretical analysis and empirical evidence from O2O on-demand food service market

Abstract

This study attempts to identify the pricing strategy of three most-commonly used on-demand food service platforms in China based on detailed information of more than 240,000 orders, and further evaluates the impact of pricing strategy on platform performance. We find that some platforms adopt dynamic pricing strategies, while other platforms adopt static pricing strategies. Considering the unique structure of the O2O on-demand food service market in China, we develop a dyadic two-sided market theory and demonstrate that compared with static pricing strategies, dynamic pricing strategies perform better. Consistent with our theory, our empirical analysis also suggests that platforms adopting dynamic pricing strategies have a significantly higher level of demand compared with platforms adopting static strategies. In addition, our results indicate the importance of delivery speed, red envelopes, and ratings in promoting demand.