Contracting and competing on a food delivery platform

Food delivery platforms increase their revenue by charging the restaurants a commission fee for using their service. This study aims to understand the restaurant’s behaviour when they face competition from other restaurants while in a contract with the food delivery platform. We compare the behaviour of the restaurant when they face no competition to their behaviour when there is competition. Specifically, we analyse the impact of competition on the commission rate and the marketing level. Both the online and offline demand for the restaurant is considered to be stochastic. We find that the platform benefits when the restaurants compete. Our study suggests the platform to decide the required marketing index for the restaurant based on their unserved online demand and commission fee, and the restaurants to fix the commission rate based on their unserved offline demand and the marketing index required to meet their capacity.