201 / 2024-04-23 10:15:00

Pricing Strategies for Platform-operated Restaurants: Impact of Social Interactions and Channel Self-cannibalization

Social interaction,Pricing strategies,Restaurant operations,channel self-cannibalization

In reality, it can be observed that many restaurants have transformed themselves into platform-operated outlets by introducing online delivery channels through platforms, in addition to their traditional dine-in channels. Partnering with platforms endows restaurants with network attributes, in which case the influence of social interaction among consumers cannot be ignored. In general, social interaction can pose a positive effect on the consumers' utility, however, this effect can also exacerbate the issue of channel self-cannibalization for restaurants when they introduce online delivery services. Therefore, this paper explores how restaurants can achieve effective coordination between their dual channels, considering the influence of social interaction and the challenges posed by channel self-cannibalization. In this regard, we analyze and compare the impact of two pricing strategies for restaurants, namely differential pricing and uniform pricing, on achieving channel coordination. We reveal that, compared to the benchmark case where restaurants solely operate the dine-in channel, the differential pricing strategy can always have the effect of maximizing the profitability of the channel system due to its pricing flexibility advantage. Regarding the uniform pricing strategy, we find that when the social interaction effect is not overly strong, this strategy will outperform the benchmark case for restaurants if self-cannibalization is either insignificant or very significant. Furthermore, we delve into the conditions under which both pricing strategies prove optimal for both restaurants and platforms, providing valuable insights into achieving valid restaurant-platform partnerships.