When Delivery Comes to Town: Consumer-to-Firm Platform Penetration and Firm Exit

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Abstract

On consumer-to-firm platforms, professional firms become complementors on a platform. Such platforms serve as digital distribution channels, potentially stimulating greater demand across an industry, but introducing an intermediary that limits the amount of value that industry actors can capture. Using the restaurant industry as an empirical setting and an instrumental variables estimation strategy that uses historical road density to predict delivery platform penetration, I examine how the penetration of such platforms within an industry affects firm survival. I argue that the introduction of a consumer-to-firm platform places pressure on firms’ margins and show that platform penetration increases the likelihood of firm exit. This effect is moderated by firm characteristics. The effect of platform penetration on the likelihood of exit is weaker for older firms that have accumulated greater slack resources over time and multilocation establishments that are able to benefit from economies of scale and is larger for firms that have invested heavily in assets linked to the legacy business model. Through this work, I add to our understanding of the impact on platforms on the industries that they enter.

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