Intra-platform Market Structure Design:With Application to the Business Model and Regulation of Online Food Delivery Service
This paper introduces the concept of"Intra-platform Market Structure Design",emphasizing how a mo-nopoly platform on an online marketplace that facilitates transactions between buyers and sellers can influence sellers'en-try through optimal pricing and value-added services,thereby designing an internal market structure within the platform that maximizes profits.We develop a dynamic game theory model,combining sellers'Salop competition with platform design,to discuss how the platform affects sellers'entry and the efficiency of platform pricing.Based on the model,we derive the following main conclusions.First,beyond transaction facilitation,the platform can achieve cross-subsidy pricing through delivery services,thereby garnering higher profits(the delivery service itself may incur losses).In cross-subsidy pricing,the platform charges sellers commissions like ad-valorem tax and charges con-sumers delivery fees based on distance.Second,due to cross-subsidy pricing,a monopolistic platform's intervention can improve economic efficiency.Compared with a scenario where sellers enter freely without platform mediation,the equi-librium number of sellers resulting from the designed internal market structure of the platform is closer(or can even equal)to the first best.Third,the optimality of cross-subsidy pricing for a platform may be affected by the competitive de-livery market and sellers'ability to deliver goods and discriminative pricing,leading to various business models.Fourth,imposing a regulatory cap on the commission rate charged by the platform to sellers may elicit strategic responses from the platform,leading to different impacts,such as redistribution of interests,zero impacts or even efficiency loss,accord-ing to specific business models of platforms.Compared with existing literature based on"platform governance",the concept of"Intra-platform Market Structure Design"proposed in this paper focuses more on specific platform business models while also considering the platform's welfare effects.Additionally,it emphasizes the potential enhancement of competition efficiency among intra-platform sell-ers due to platform design.For instance,prior analyses of third-party platforms often assume the platform's role is limited to facilitating transactions.This paper further analyzes the role of delivery services and interprets them as a means to implement cross-subsidy pricing and price discrimination.The applied value of this paper lies in explaining the business model of online food delivery services.Compared with e-commerce platforms,third-party online food delivery platforms have a unique business model:in addition to trans-action facilitation,they also provide delivery services,with their revenue mainly derived from delivery fees and commis-sions.Data analysis from leading online food delivery platforms in China shows that while the platforms are profitable overall,the delivery services themselves incur losses.The conclusions from our model help to elucidate this business model,particularly the impact of loss-making delivery businesses on platform profits and economic efficiency,and the po-tential effects of regulating the commission rates charged by platforms to sellers.In recent years,discussions have been intensified within the economics community regarding the development of the platform economy,especially concerning whether and how the government should regulate large Internet platforms.This paper offers the following major policy implications.First,it is crucial to fully recognize the crucial role of platforms in market structure design and their special economic principles to promote high-quality development of the platform economy.Second,to evaluate the effects of regulation on a platform,we should analyze the strategic responses induced by regulation and the further welfare impacts,including effects on competition within a platform.
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