Food Delivery Service and Restaurant: Friend or Foe?
72 Pages Posted: 23 Oct 2019 Last revised: 11 Dec 2019
Date Written: December 11, 2019
With emerging food delivery services, customers can hire delivery workers to pick up food on their behalf and deliver it to them. To investigate the long-term 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 consists of tech-savvy customers who have access to a food delivery service platform. The other stream consists of traditional customers who are not tech-savvy enough to use a food delivery service and only walk in by themselves. We study a Stackelberg game, in which the restaurant first sets the price of the food, the same for online and offline customers; the food delivery platform then sets the delivery fee; and, last, rational customers decide whether to walk in, balk, or use a food delivery service if they have access to one. We show that the food delivery platform does not necessarily increase demand for the restaurant but may just change the composition 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 conditions of no coordination between the restaurant and the food delivery platform, we show, somewhat surprisingly, that more customers having access to a food delivery service may hurt the food delivery platform itself and the society, when the food delivery service is sufficiently convenient and the pool of delivery workers is large enough. This is because the restaurant can become a delivery-only kitchen and raise its food price, leaving little surplus for the food delivery platform and consumers. But this would not happen when the pool of delivery workers could be capped. It is implied that limiting the number of delivery workers provides a simple yet effective means for the food delivery platform to improve its own profit while benefiting social welfare at the same time.
Keywords: queueing economics, on-demand service platform, supply chain contracting, omnichannel operations
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