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Practitioner-Oriented Abstract Online platforms often face challenges in sustaining growth, especially in competitive markets such as food delivery. This paper examines a novel strategy in which platforms list nonpartnered restaurants, allowing consumers to order from them via third-party deliverers. Whereas these restaurants gain visibility without paying commissions, concerns arise about potential harm because of lack of control over menus and pricing. We analyze the impact of this strategy using data from Grubhub and a California policy change that banned nonpartnered listings. We find that being listed as nonpartnered boosts takeout revenue for these restaurants, particularly independent ones. Additionally, there’s a positive spillover effect on partnered restaurants. However, regulatory delisting reverses these gains, highlighting the delicate balance between platform growth strategies and regulatory actions. For platform owners, this study underscores the potential of noncontracted partnerships as a growth strategy, especially if there are third-party enablers on the platform such as deliverers. However, it also cautions against potential disruptions from regulatory changes, urging businesses to adapt their strategies accordingly. For restaurant owners, our finding emphasizes the importance of adapting to changes by enhancing operational readiness to capitalize on increased visibility. They should advocate for regulations that enhance their choices and overall transparency, not inadvertently decrease them. Policy-Oriented Abstract In the competitive landscape of online platforms, the pursuit of growth often necessitates innovative strategies. Whereas such strategies are deemed controversial and get pushbacks from some participants, how should policymakers respond? This research provides insights into such a scenario by investigating a novel growth strategy in which food delivery platforms onboarded nonpartnered restaurants, enabling consumer interactions without formal contracts, promising an increased visibility without commission fees. Leveraging data from Grubhub and a policy change in California, we find that being listed boosts takeout revenue significantly, especially for independent restaurants, with positive spillovers on partnered restaurants. However, delisting reverses these gains. For policymakers, these findings challenge the narrative that nonpartnered listings are inherently harmful. They highlight the potential of such arrangements to increase market access and revenue, particularly for independent businesses. However, the study also underscores the need for balanced regulation. Whereas protecting restaurants is crucial, overly restrictive policies can limit their choices and growth opportunities. We recommend a policy approach that empowers restaurants by requiring platforms to obtain explicit consent before listing them. Additionally, enhancing transparency around nonpartnered listings and associated fees can enable customers to make informed choices. This approach fosters a fair market, preserving the benefits of platform-enabled growth for all stakeholders.
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Regulating Powerful Platforms: Evidence from Commission Fee Caps
Digital platforms have become increasingly dominant in many industries, bringing the concerns of adverse economic and societal effects (e.g., monopolies and social inequality). Regulators are actively seeking diverse strategies to regulate these powerful platforms. However, the lack of empirical studies hinders the progress toward evidence-based policymaking. This research investigates the regulatory landscape in the context of on-demand delivery, where high commission fees charged by the platforms significantly impact small businesses. Recent regulatory scrutiny has started to cap the commission fees for independent restaurants. We empirically evaluate the effectiveness of platform fee regulation by utilizing regulations across 14 cities and states in the United States. Our analyses unveil an unintended consequence: independent restaurants, the intended beneficiaries of the regulation, experience a decline in orders and revenue, whereas chain restaurants gain an advantage. We show that the platforms’ discriminative responses to the regulation, such as prioritizing chain restaurants in customer recommendations and increasing delivery fees for consumers, may explain the negative effects on independent restaurants. These dynamics underscore the complexity of regulating powerful platforms and the urgency of devising nuanced policies that effectively support small businesses without triggering unintended detrimental effects.
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- Award ID(s):
- 2243736
- PAR ID:
- 10497555
- Publisher / Repository:
- INFORMS
- Date Published:
- Journal Name:
- Information Systems Research
- ISSN:
- 1047-7047
- Format(s):
- Medium: X
- Sponsoring Org:
- National Science Foundation
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- Free Publicly Accessible Full Text
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Accepted Manuscript1.0
- Journal Article:
- https://doi.org/10.1287/isre.2022.0191
