Food Delivery Service and Restaurant : Friend or Foe?

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

44 Scopus Citations
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Original languageEnglish
Pages (from-to)6539–6551
Journal / PublicationManagement Science
Volume68
Issue number9
Online published8 Feb 2022
Publication statusPublished - Sept 2022

Abstract

With food delivery services, customers can hire delivery workers to pick up food on their behalf. To investigate the long-term impact of food delivery services on the restaurant industry, we model a restaurant serving food to customers as a stylized single server queue with two streams of customers. One stream consists of tech-savvy customers who have access to a food delivery service platform. The other stream consists of traditional customers who are not able to use a food delivery service and only walk in by themselves. We study a Stackelberg game, in which the restaurant first sets the food price; the food delivery platform then sets the delivery fee; and, last, rational customers decide whether to walk in, balk, or use a food delivery service if they have access to one. If the restaurant has a sufficiently large established base of traditional customers, we show that the food delivery platform does not necessarily increase demand but may just change the composition of customers, as the segment of tech-savvy customers grows. Hence, paying the platform for bringing in customers may hurt the restaurant's profit-ability. We demonstrate that either a one-way revenue-sharing contract with a price ceiling or a two-way revenue-sharing contract can coordinate the system and create a win-win situation. Furthermore, under conditions of no coordination between the restaurant and the platform, we show, somewhat surprisingly, that more customers having access to a food delivery service may hurt the platform itself and the society, when the food delivery service is sufficiently convenient, and the delivery-worker pool is large enough. This is because the restaurant can become a delivery-only kitchen and raise its food price by focusing on food-delivery customers only, leaving little surplus for the platform. This implies that limiting the number of delivery workers can provide a simple yet effective means for the platform to improve its own profitability while benefiting social welfare. © 2022 INFORMS.

Research Area(s)

  • food delivery, on-demand economy, service operations, omnichannel operations, queueing economics, channel coordination, revenue-sharing contract, labor welfare, QUEUING-SYSTEMS, EQUILIBRIUM, QUEUES

Citation Format(s)

Food Delivery Service and Restaurant: Friend or Foe? / Chen, Manlu; Hu, Ming; Wang, Jianfu.
In: Management Science, Vol. 68, No. 9, 09.2022, p. 6539–6551.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review