Platform Delivery: A Game-theoretic Analysis of a New Delivery Model in the Sharing Economy

Thanks to the advances in technology, new types of service delivery spring up in the sharing economy. Owning no warehouse and hiring no full-time shoppers, Instacart runs its grocery delivery service by delivering grocery from independent retailers by independent contractors to its consumers. This “platform delivery” model is formulated as a game-theoretic model and investigated. We discuss the profitability of three common pricing policies: membership-based pricing, transaction-based pricing, and cross subsidization. We wonder which policy is the best for the platform. In this study, we construct a game-theoretic model featuring network externality and sharing economy to address our research questions. There are three types of players in the market: a group of potential consumers placing orders, a group of potential shoppers providing delivery services, and a platform connecting consumers and shoppers. There exists positive cross-side network externality between consumers and shoppers. The major purpose of our work is to study the profitability of the three pricing strategies and figure out factors that affect the platform’s choice. Our main result shows that all the three strategies are equivalent in some situations: They result in the same per-transaction subsidy for shoppers, numbers of shoppers and consumers, and profits in equilibrium. However, when the platform care about how fast it can receive money, we find that membership-based pricing is the best and transaction-based pricing is the worst. Furthermore, if a consumer’s consumption in each membership period would be negatively affected by the per-transaction fee charged from consumers, we find that the cross-subsidization strategy is better than the transaction-based pricing one for platform to implement.