This paper evaluates caps on the commissions that food delivery platforms charge to restaurants. Commission caps may lead restaurants to join platforms and to post lower prices on platforms, thereby benefitting consumers. But caps may also lead platforms to raise their consumer fees, thereby reducing ordering on platforms and consequently platforms’ value to restaurants. The net welfare effects of caps are thus uncertain. To quantify these effects, I estimate a model of pricing and platform adoption in a multi-sided market using data on consumer restaurant orders, restaurants’ platform adoption, and platform fees. Counterfactual simulations imply that commission caps bolster restaurant profits at the expense of consumers and platforms.
Michael Sullivan is a postdoctoral fellow at the D^3 Institute at Harvard Business School. He studies competition and regulation in digital industries as well as the relationship between online and offline firm operations.
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