A Competition Model for Delivery Services of Online Retailers

With the advance of drone technology, online retailers may need to decide if they should keep cooperating with courier delivery providers or invest in drones for delivering their packages. Therefore, in this thesis, we propose a stylized model to help online retailers decide if they should deploy drone delivery services in duopoly market. The results show that our proposed model can find the optimal region for each strategy. When both online retailers have the same base utility, they are better off providing or not providing drone delivery services simultaneously. Interestingly, there is no room for just one retailer to provide drone delivery services. Also, both online retailers may confront prisoner’s dilemma and earn less profit in some conditions. However, it becomes feasible for just one retailer to provide drone delivery services when an online retailer has a higher base utility. Our analytical results can provide some valuable insights of delivery services for online retailers and help them formulate effective strategies for different market circumstances.