Fairness, profits and social welfare: the implications of pay-what-you-want in online food delivery
Asia Pacific Journal of Marketing and Logistics
ISSN: 1355-5855
Article publication date: 5 December 2023
Abstract
Purpose
Pay-what-you-want (PWYW) is a pricing strategy implemented in a variety of settings like supermarkets and museums, in which consumers determine the price they are willing to pay for a product or service based on their perceived utility. The authors propose an analytical model to investigate the impact of PWYW delivery pricing on the online food delivery (OFD) platforms.
Design/methodology/approach
Using a game-theoretic model, the authors characterize the equilibrium as a function of the platform's average delivery cost and the consumer's social preferences parameters like fairness and reciprocity. The authors derive the parametric conditions under which PWYW generates higher profits for the platform compared to the traditional pay-as-asked delivery pricing.
Findings
For the PWYW strategy to be profitable, the average delivery cost to the platform should be low. Therefore, OFD platform managers should focus on reducing delivery costs. The authors also identify the feasible region in which the platform managers need to maintain the consumer's social preferences.
Practical implications
Under PWYW, the authors recommend that the platform managers impose a minimum delivery fee which consumers can use as a benchmark to minimize zero delivery fee payments and consumers' free-riding tendencies simultaneously. This allows OFD platforms to extract online orders from highly price-conscious consumers.
Originality/value
This is one of the first studies to explore the innovative application of PWYW to a particular segment of delivery pricing in OFD platforms. The authors establish that the overall consumer surplus and social welfare are higher under the PWYW strategy, forming a solid ground for its implementation in OFD platforms.
Keywords
Acknowledgements
The authors are grateful for the valuable guidance provided by Prof. Vinaysingh Chawan, Indian Institute of Management Indore during the development of this work. The authors also thank anonymous reviewers for the constructive suggestions during the review of this work.
Citation
Shroff, A., Shah, B.J. and Gajjar, H. (2023), "Fairness, profits and social welfare: the implications of pay-what-you-want in online food delivery", Asia Pacific Journal of Marketing and Logistics, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/APJML-06-2023-0592
Publisher
:Emerald Publishing Limited
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