Dinner at Your Doorstep: Service Innovation via the Gig Economy on Food Delivery Platforms

• Published in: Information systems research 2024-09, Vol.35 (3), p.1216-1234
• Main Authors: Sun, Geng, Kim, Yeongin, Tan, Yinliang (Ricky), Parker, Geoffrey G.
• Format: Article
• Language: English
• Subjects: Consumers; COVID-19; Deliveries; Food service; Gig economy; Labor market; Markets; multisided markets; on-demand platform; online food delivery; Pandemics; Platforms; Pressure effects; service innovation; Staff participation
• ISSN: 1047-7047; 1526-5536
• DOI: 10.1287/isre.2022.0119

Despite the rapid growth of online food delivery (OFD) market, the impact of its three-sided nature—encompassing consumers, restaurants, and gig drivers—on incentives and payoffs remains unclear compared to the traditional two-sided model. This study examines how OFD platforms make optimal choices in a competitive environment involving pricing and service quality. The analysis reveals that insights from two-sided platforms don’t seamlessly translate to OFD markets. The triad nature of OFD can either dampen or heighten price competition in the buyer-seller market, altering subsidization dynamics for platforms. While conventional platforms suffer from negative network effects due to participation pressure, OFD platforms can adapt service strategies to mitigate this. However, introducing gig labor might not always benefit OFD platforms as it could trigger a prisoner’s dilemma situation by empowering competing platforms. The study underscores the dependence of platform strategies on network effects’ strength. As the gig economy rises, the employment status of gig workers garners controversy. The study demonstrates that implementing minimum wage regulations, while benefiting gig drivers, might diminish societal welfare. These findings offer guidance to policymakers aiming to balance gig workers’ interests with overall societal concerns. Boosted by greater demand for convenience and then turbocharged by the coronavirus disease 2019 pandemic, online food delivery (OFD) has witnessed rapid growth over the past several years. Despite such growth, however, it is still unclear how incentives and payoffs of various parties are affected by the three-sidedness of the OFD market, which involves consumers, restaurants, and gig drivers—beyond the traditional two-sided setting. In this paper, we study the OFD platforms’ optimal choices in a competitive setting where the platforms compete on both prices and service quality. Our analysis shows that conventional insights from two-sided platforms do not completely carry over to OFD markets. Specifically, we find that the three-sidedness may either soften or intensify the price competition in the buyer-seller market, consequently altering the subsidizing conditions of OFD platforms. Although two-sided platforms generally get hurt by network effects because of the pressure to induce participation, OFD platforms are able to mitigate such negative impact by flexibly adjusting their service strategies. Yet, OFD platforms may not alw