Distance-Based Fee Design of Rapid Delivery

Abstract

The rapid delivery service industry has seen significant growth and diversification in pricing and operational strategies. Employing a queueing economics model, we investigate the impact of a distance-based two-part pricing scheme and the introduction of a self-pickup option on vendor profitability, customer welfare, and social welfare across different stages of market evolution—ranging from low-density introduction to high-density saturation stage. Our findings reveal that two-part pricing enhances vendor profits compared to flat-rate pricing but has nuanced effects on customer welfare: it reduces welfare in low-density markets while improving it in high-density markets. Two-part pricing optimizes delivery efficiency in high-density markets by focusing on nearby customers, benefiting the vendor and customers. However, in low-density markets, the reduction in customer welfare outweighs vendor profit gains, leading to lower social welfare.

Additionally, introducing a self-pickup option creates a mutually beneficial situation for vendors and customers. By allowing nearby customers to collect their orders, self-pickup increases delivery capacity, improves resource allocation, and enhances overall efficiency, especially in high-density markets where the concentration of nearby customers maximizes the positive impact. Our study provides actionable insights for rapid delivery platforms, highlighting the importance of tailoring pricing and operational strategies to market conditions. Early-stage platforms can adopt flat-rate pricing to foster market adoption, while mature platforms can transition to two-part pricing and self-pickup options to optimize efficiency and profitability. These findings underscore the strategic value of two-part pricing and self-pickup as tools for improving operational performance and stakeholder outcomes in the rapidly evolving delivery service industry.

Keywords: Rapid Delivery, Queueing Economics, Sharing Economy, Omni-Channel Operations