The role of on‐demand delivery platform in competition between manufacturer and retailer

Abstract

Traditional retailers can now partner with on‐demand delivery platforms to fulfill consumers' online orders to fight against manufacturers' direct channels. However, it is hard to say whether traditional retailers benefit from cooperating with such platforms due to market encroachment and high commission fees. We build a game‐theoretic model where the manufacturer could decide whether to introduce its direct channel, and the retailer could decide whether to cooperate with the on‐demand delivery platform. We show that when the platform adopts a reasonable pricing and service policy, the retailer can earn more profit when cooperating with the platform. When consumer acceptance of the manufacturer's direct channel is high, the manufacturer should strategically introduce its direct channel even when there are no sales. We also find that the introduction of the platform lowers the retail price at the offline channel, increasing the market's total demand, consumer surplus, and social welfare. The reason lies in the effect of intensifying downstream competition and satisfying the consumer's demand in more market segments.