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

Abstract

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.