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

Abstract

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.

Full text

Online Encroachment for Social Promotion: Is Reward-
based Platform Traffic Rewardful?
Baozhuang Niu
School of Business Administration, South China University of Technology, Guangzhou
510640, PR China, bmniubz@scut.edu.cn
Lei Chen
Department of Administrative Management, Jinan University, Guangzhou, 510632 China,
jayden_business@foxmail.com
Qiyang Li*
School of Business Administration, South China University of Technology, Guangzhou
510640, PR China, kejiaboy@163.com
*Corresponding author
Abstract: 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.
Key words: Supplier encroachment, Social traffic, Platform subsidy, Channel externality