Growing Platforms by Adding Complementors without a Contract

Abstract

Multi-sided platforms often pursue growth strategies of expanding participants on one side (e.g., suppliers) and leveraging the cross-side network effect to attract participants on other sides (e.g., consumers). While formal contractual agreements have traditionally been the norm for onboarding suppliers, an emerging trend involves platforms enabling consumers to interact with non-contracted suppliers via third-party enablers, with both sharing profits from providing complementary services. This study examines this strategy of increasing market thickness in the context of food delivery platforms, focusing on the platforms' inclusion of restaurants as "non-partnered" restaurants. Non-partnered restaurants do not pay commission fees for being listed on the platforms and do not control their menu or item prices. The platforms collect and transfer consumer orders to the third-party deliverers who place the order, pick up, and deliver the food to consumers. The strategy has drawn regulatory scrutiny regarding its potential harm to non-partnered restaurants and consumers. This research empirically investigates the impact of this non-contracted partnership on restaurants, leveraging two natural experiments: (1) a number of non-partnered restaurants were listed on the platform, and (2) the restaurants were later delisted because of a governmental regulation. Our findings show that being added as a non-partnered restaurant increases these restaurants' revenue from takeout orders by about $1,410 per month. Adding non-partnered restaurants also has a positive spillover effect on the revenue of partnered restaurants already on the platform. Finally, the de-listing of non-partnered restaurants leads to a drop in their takeout orders, as well as a negative spillover on the revenue of partnered restaurants. In essence, a "non-partnered'' contract benefits most restaurants, especially independent restaurants. These insights can inform the design of platform and regulatory policies related to non-contracted growth strategies.

Keywords: Multi-sided platforms, on-demand delivery, network effects, regulation, seeding, platform policy, market thickness

JEL Classification: L14, D85, L86, L22