Fee Optimality in a Multi-Sided Market

Résumé

This article studies the efficiency and distributional properties of platform fees in the US food delivery sector. Using a structural model estimated on data covering all major delivery platforms, I quantify distortions arising from platform market power, cross-side externalities, and features commonly excluded from canonical models of platform pricing: intra-platform competition, substitution to offline ordering (cannibalization), and platform competition. I find that profit-maximizing platforms set consumer fees that are only slightly excessive, as the cannibalization distortion partially offsets the upward pressure from market power. In contrast, restaurant commissions are nearly twice as high as their welfare-optimal levels. Commission caps improve welfare when set at moderate levels (20–30%) but reduce it at lower levels (e.g., 15%) by raising consumer fees and shrinking the user base that benefits from expanded restaurant variety. Cannibalization explains much of the cross-market variation in the gap between profit-maximizing and welfare-maximizing commission rates. Simulations further show that platform competition tends to reduce consumer fees but raise seller fees, implying that competition does not correct the bias of platform fee structures against merchants.