Growing Platforms by Adding Complementors without Consent: Evidence from On-Demand Food Delivery Platforms

This empirical research investigates the impact of an aggressive growth strategy used by delivery platforms to add restaurants to their platforms without restaurants' consent. Although these platforms provide a valuable option to consumers to access restaurant services, they experience strong resistance from the other side (restaurants), due to unclear benefits from the partnership and the potential risks of cannibalization. To grow the multi-sided networks, platforms have experimented with a new seeding strategy that enlists restaurants on platforms without restaurants' consent. Such a seeding strategy is controversial and is under regulation scrutiny. For example, California enacted a policy in 2020 that made it illegal for delivery platforms to list restaurants without a formal partnership with them. Using a rich panel dataset compiled from public and proprietary sources, this research exploits two shocks to identify the impact of the aggressive platform growth strategy and the retrospective regulation on restaurants. The first shock is non-partnered restaurants being listed on the platform without the restaurants' consent. The second shock is the de-listing of non-partnered restaurants from the platform after California deemed such a platform strategy illegal. Our results suggest that being listed on a platform reduces a restaurant's $DineIn$ visits but increases $TakeOut$ visits. Furthermore, independent restaurants lose more $DineIn$ visits than the gain in $TakeOut$ visits, resulting in a net loss of total demand. Furthermore, retrospective regulation to delist non-partnered restaurants actually hurt these restaurants. After the regulation, independent restaurants not only lose $TakeOut$ visits but also fail to recover their pre-listing $DineIn$ visits. The findings provides practical insights that can help restaurants, delivery platforms, and policymakers make informed decisions around policies and regulations.