Food Delivery Service and Restaurant: Friend or Foe?

71 Pages Posted: 23 Oct 2019 Last revised: 29 Oct 2019

See all articles by Manlu Chen

Manlu Chen

affiliation not provided to SSRN

Ming Hu

University of Toronto - Rotman School of Management

Jianfu Wang

Nanyang Technological University (NTU) - Nanyang Business School

Date Written: October 15, 2019

Abstract

With emerging food delivery services, customers can hire deliverymen to pick up food on their behalf and make a delivery to them. To investigate the long-run impact of food delivery services on the restaurant industry, we model a restaurant serving food to customers as a stylized single-server queue with two streams of customers. One stream is tech-savvy customers who have access to a food delivery service platform. The other stream is traditional customers who are not tech-savvy enough to use food delivery service and only walk in by themselves. We study a Stackelberg game, in which the restaurant first sets the food price, the same for online and offline customers; the food delivery platform then sets the delivery fee; and lastly, rational customers decide whether to walk in, balk, or use food delivery service if they have access to it. We show that the food delivery platform does not necessarily increase demand for the restaurant but just changes the decomposition of customers, as the segment of tech-savvy customers grows. Hence, paying the platform for bringing in customers may hurt the restaurant's profitability. Furthermore, under no coordination between the restaurant and the food delivery platform, we show, somewhat surprisingly, that more customers having access to food delivery service (while the amount of the walk-in customers is fixed) may hurt the food delivery platform and the society, when food delivery service is sufficiently convenient and the food delivery platform's deliveryman pool is large enough. This is because the restaurant can increase the food price and become a ghost kitchen, only serving online orders and leaving little surpluses to the food delivery platform. But this would not happen when the deliveryman pool could be capped. It is implied that limiting the deliverymen's pool size provides a simple yet effective means for the food delivery platform to improve its own profit while benefiting the social welfare at the same time.

Suggested Citation

Chen, Manlu and Hu, Ming and Wang, Jianfu, Food Delivery Service and Restaurant: Friend or Foe? (October 15, 2019). Available at SSRN: https://ssrn.com/abstract=3469971

Manlu Chen

affiliation not provided to SSRN

Ming Hu (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George st
Toronto, ON M5S 3E6
Canada
416-946-5207 (Phone)

HOME PAGE: http://ming.hu

Jianfu Wang

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Singapore, 639798
Singapore

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