Online Encroachment for Social Promotion : Is Reward-based Platform Traffic Rewardful?

Restaurants have traditionally operated offline only, but food delivery platforms induce their online encroachment. In practice, consumers who share digital coupons offered by the platforms (e.g., Uber Eats and Meituan) in social networks (e.g., Facebook, Twitter and WeChat) will be rewarded for the social traffic, which effectively attracts many restaurants to open the online store. But it comes along with the intensified competition with the restaurant’s physical (offline) store. In this paper, we formulate the restaurant’s tradeoffs among platform traffic benefit, consumers’ heterogeneous utility, and the platform’s commission in the online encroachment decision. We find that, interestingly, the increased platform traffic may be harmful to the restaurant, and even the entire channel system. We also find that the disruption of the offline store caused by extreme events such as COVID-19 pandemic will not qualitatively change the main findings