345 / 2024-04-24 16:18:07

On-demand Service Strategies for Restaurants with Heterogeneous Customer Congestion Costs

food delivery,service operations,congestion effect,channel strategy,third-party delivery platform

The rapid growth of the Internet economy has witnessed delivery service become a “standard feature” in many restaurants, providing customers with a convenient dining experience that is highly appreciated. However, the piling up of orders in restaurant kitchens generate congestion, which negatively impacts customers. This paper investigates the optimal on-demand service strategy for a restaurant that offers food to customers through one or two service channels: the dine-in service and delivery service. We find that the hybrid service strategy is not necessarily optimal and that the profits of both the restaurant and the third-party delivery platform are positively correlated with the congestion cost heterogeneity between delivery and dine-in customers. In particular, when the congestion cost heterogeneity is significant, the restaurant will choose to offer a pure delivery service. In contrast, when the congestion cost heterogeneity is subtle, the restaurant offers a pure dine-in service. At moderate congestion cost heterogeneity, the hybrid service strategy is optimal for the restaurant. Upon examining the subsidy or charging policy of the third-party delivery platform and its implementation conditions, we find that a high commission rate corresponds to the subsidy policy, while a low commission rate corresponds to the charging policy. Furthermore, we discuss a realistic scenario with unequal unit production costs of food in both channels and find that the optimal service strategy structure for the restaurant remains unchanged and that the dine-in service becomes less attractive to the restaurant as the unit cost in dine-in service increases.