Restaurants’ Platform Partnership for Social Promotion and Resilient Revenue: Is Reward-Based Traffic Really Rewardful?

Abstract

Restaurants have traditionally operated offline only, but the growth of food delivery platforms has prompted a shift toward online sales. In practice, consumers who share digital coupons offered by the platforms (e.g. Uber Eats and Meituan) in social networks (e.g. Facebook, Twitter, and WeChat) will be rewarded for the social traffic, which effectively attracts many restaurants to open online store. However, this also leads to intensified competition with the restaurant's physical (offline) store. In this article, we formulate the restaurant's tradeoffs among platform traffic benefits, consumers’ heterogeneous utility, and the platform's commission in the online selling decision. Interestingly, we find that the increased platform traffic may be harmful to the restaurant, and even the entire channel system. The platform offering high subsidies may trap restaurants in a pricing dilemma. We also find that restaurants’ online selling will induce a negative externality due to online/offline order congestion, but it will not qualitatively change the main findings.