When Delivery Comes to Town: Consumer-to-Firm Platform Penetration and Establishment Exit

Abstract

Consumer-to-firm platforms are digital distribution channels, lowering search costs and potentially stimulating greater demand within an industry, but introducing a new intermediary into the value chain. Using the restaurant industry as a setting and an instrumental variables identification strategy, I examine how consumer-to-firm platform penetration affects establishment survival. I show that, in this setting, platform penetration increases the likelihood of establishment exit, but this effect is weaker when establishments have greater bargaining power and are better able to capture value from the platform ecosystem. The effect of platform penetration on establishment exit is attenuated for establishments benefitting from consumer familiarity and when inter-platform competition is high and is magnified for establishments in market segments that compete more directly with platform offerings. Through this work, I add to our understanding of how consumer-to-firm platforms affect the industries they enter.

Keywords: Platforms, digital markets, competition, industry evolution, ecosystems, restaurants, delivery