Analysis of an on-demand food delivery platform: Participatory equilibrium and two-sided pricing strategy

Wenli Zhou, Siyuan Zhu, Ping Cao and Jie Wu

Journal of the Operational Research Society, 2024, vol. 75, issue 6, 1193-1204

Abstract: The on-demand food delivery platform assigns orders from customers to independent couriers, known as agents. An agent’s decision to provide services depends on the wage and the order assignment. The platform can adjust the actual supply and demand through two-sided pricing, such that an equilibrium between customers and agents that maximizes the platform’s profit can be formed. We develop a stylized model to investigate the optimal price and wage of a platform facing delay-sensitive customers and income-sensitive agents. We find three possibilities for participatory equilibrium in the platform as the pair of wage and price changes. Meanwhile, all participatory equilibrium regions have two asymptotically stable equilibria, one of which is a nonparticipatory equilibrium. The platform can form a participatory equilibrium only when it attracts enough customers and agents in the initial phase. Our analysis shows that the optimal pricing strategy and the maximum revenue for a platform depend on the valuation and delay sensitivity of the target customers. Furthermore, contradicting the intuition, our results show that the optimal wage is non-increasing in the total demand rate and that the optimal price is non-decreasing in the service capacity of the platform.

Date: 2024
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DOI: 10.1080/01605682.2023.2239853

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