Market Thickness and Delivery Efficiency in Food Delivery Platforms

Posted: 18 Oct 2022

See all articles by Ruomeng Cui

Ruomeng Cui

Goizueta Business School, Emory University

Wenchang Zhang

Indiana University, Kelley School of Business

Zhanzhi Zheng

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Date Written: October 6, 2022

Abstract

Market thickness, which measures the number of participants in a market, is a critical driver for platforms to grow and thrive. In food delivery platforms, market thickness entails the restaurant density in a geographic area (i.e., a regional market). We study the implications of restaurant density and performances in food delivery platforms. While the literature has shown competition as a way in which market thickness impacts platforms, we posit that this platform feature can dictate consumer behaviors via altering restaurants' operations performances---delivery efficiency. Using a theoretical model, we characterize two major mechanisms with the opposite effects by a thicker market. (1) The intensified competition as a result of wider consumer choices can hurt restaurants' sales from the platform, and (2) the speedy delivery as a result of drivers' efficiency gain in delivery pooling that can improve consumers' experiences. To this end, we collect panel data from one of the leading food delivery platforms in China, and exploit its market thickness changes in various regions. Then, the effects of market thickness are estimated by a two-way fixed effect model, with the control of regional temporal influences (e.g., consumer population in a region). We show that a higher market thickness leads to shorter order wait time; it also boosts restaurants' sales and revenues, indicating that the delivery efficiency benefit unexpectedly dominates the competition effect in our context. To understand the mechanisms, we further employ instrumental variables to identify the causal chain from market thickness increase to restaurants' sales and revenue boosts through delivery efficiency improvement. In addition to the novel positive externalities of market thickness, our findings have implications for food delivery platforms' expansion strategies.

Keywords: food delivery platform, market thickness, delivery

Suggested Citation

Cui, Ruomeng and Zhang, Wenchang and Zheng, Zhanzhi, Market Thickness and Delivery Efficiency in Food Delivery Platforms (October 6, 2022). Available at SSRN: https://ssrn.com/abstract=4239864

Ruomeng Cui

Goizueta Business School, Emory University ( email )

1300 Clifton Road
Atlanta, GA 30322
United States

HOME PAGE: http://www.ruomengcui.com

Wenchang Zhang (Contact Author)

Indiana University, Kelley School of Business ( email )

Business 670
1309 E. Tenth Street
Bloomington, IN 47401
United States

HOME PAGE: http://www.wenchangzhang.com/

Zhanzhi Zheng

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

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