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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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On-Demand Delivery Platforms and Restaurant Sales
Restaurants are increasingly relying on on-demand delivery platforms (e.g., DoorDash, Grubhub, and Uber Eats) to reach customers and fulfill takeout orders. Although on-demand delivery is a valuable option for consumers, whether restaurants benefit from or are being hurt by partnering with these platforms remains unclear. This paper investigates whether and to what extent the platform delivery channel substitutes restaurants’ own takeout/dine-in channels and the net impact on restaurant revenue. Empirical analyses show that restaurants overall benefit from on-demand delivery platforms—these platforms increase restaurants’ total takeout sales while creating positive spillovers to customer dine-in visits. However, the platform effects are substantially heterogeneous, depending on the type of restaurants (independent versus chain) and the type of customer channels (takeout versus dine-in). The overall positive effect on fast-food chains is four times as large as that on independent restaurants. For takeout, delivery platforms substitute independent restaurants’ but complement chain restaurants’ own takeout sales. For dine-in, delivery platforms increase both independent and chain restaurants’ dine-in visits by a similar magnitude. Therefore, the value of delivery platforms to independent restaurants mostly comes from the increase in dine-in visits, whereas the value to chain restaurants primarily comes from the gain in takeout sales. Further, the platform delivery channel facilitates price competition and reduces the opportunity for independent restaurants to differentiate with premium services and dine-in experience, which may explain why independent restaurants do not benefit as much from on-demand delivery platforms. This paper was accepted by D. J. Wu, information systems. Funding: Z. Li is grateful to the National Science Foundation Division of Social and Economic Sciences for support provided through the CAREER award [Grant 2243736]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.01010 .
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- Award ID(s):
- 2243736
- PAR ID:
- 10575491
- Publisher / Repository:
- INFORMS
- Date Published:
- Journal Name:
- Management Science
- ISSN:
- 0025-1909
- 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/mnsc.2021.01010
