Growing Platforms by Adding Complementors Without Consent: Evidence from On-Demand Food Delivery Platforms

29 Pages Posted: 18 Nov 2021

See all articles by Raveesh Mayya

Raveesh Mayya

New York University (NYU) - Leonard N. Stern School of Business

Zhuoxin Li

University of Wisconsin-Madison - Wisconsin School of Business

Date Written: September 30, 2021

Abstract

This empirical research investigates the impact of an aggressive growth strategy used by delivery platforms to add restaurants to their platforms without restaurants' consent. Although these platforms provide a valuable option to consumers to access restaurant services, they experience strong resistance from the other side (restaurants), due to unclear benefits from the partnership and the potential risks of cannibalization. To grow the multi-sided networks, platforms have experimented with a new seeding strategy that enlists restaurants on platforms without restaurants' consent. Such a seeding strategy is controversial and is under regulation scrutiny (e.g., in California). Using a rich panel dataset compiled from public and proprietary sources, this research exploits two shocks to identify the impact of the aggressive platform growth strategy and the retrospective regulation on restaurants. The first shock is non-partnered restaurants being listed on the platform without the restaurants' consent. The second shock is the de-listing of non-partnered restaurants from the platform after California deemed such a platform strategy illegal. Our results suggest that being listed on a platform reduces a restaurant's dine-in visits but increases takeout visits. However, independent restaurants lose more dine-in visits than they gain in takeout visits, resulting in a net loss of total demand. Furthermore, retrospective regulation to de-list non-partnered restaurants actually hurt these restaurants. After the regulation, independent restaurants not only lose takeout visits but also fail to recover to the dine-in visits level prior to being listed. The findings provide practical insights that can help restaurants, delivery platforms and policymakers make informed decisions around policies and regulations.

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

Suggested Citation

Mayya, Raveesh and Li, Zhuoxin, Growing Platforms by Adding Complementors Without Consent: Evidence from On-Demand Food Delivery Platforms (September 30, 2021). NET Institute Working Paper No. 21-14, Available at SSRN: https://ssrn.com/abstract=3945088 or http://dx.doi.org/10.2139/ssrn.3945088

Raveesh Mayya (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Zhuoxin Li

University of Wisconsin-Madison - Wisconsin School of Business ( email )

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