Answer to Question #187939 in Microeconomics for Cluni

Question

What kind of market structure is the online food delivery service platform (DoorDash, Uber Eats, Menulog) operating in? Specifically, are the markets an oligopoly structure or perfectly competitive structure and why? Many sources claim that there are low barriers to entry and consumers are extremely price sensitive so does that make them price setters instead of price takers and does this disprove claims that they're in a perfectly competitive market? In the context of the food delivery service market, who are the producers and consumers (would it be the diners and restaurants they are partnered with?) and individuals who demand for the meal delivery service? It is a bit confusing to comprehend as many companies are intermediaries and its platform-customer service and they're a three-sided marketplace involving restaurants, customers and food delivery workers.

Thank you!

Answer 1

The online food distribution service platform's business structure. The business structure under which they work is one that is perfectly competitive. On the market, there are numerous buyers and sellers. Each business creates the same product. Both buyers and sellers have access to the most up-to-date pricing information. There are no transaction costs required. There are no barriers to entering or exiting the industry. Consumers are price-sensitive and have low entry barriers.

First, low entry barriers exist, and just because they are price sensitive does not mean they are price setters. They are also price takers because they have no control over the market price of their product; if a business tries to raise the price, consumers would instead buy from a competitor at a cheaper price. In a completely free market, buyers and sellers do not incur the expense of trading products, although this does not rule out the possibility of a perfectly competitive market. In the food distribution sector, there are both producers and consumers.

Diners are family-owned businesses or restaurants, with some chains evolving over time. Burgers, fried fries, club sandwiches, and other basic and quick-cooked foods are commonly served in diners. There is a three-sided marketplace for online distribution that includes restaurants, consumers, and food delivery staff. The manufacturers, which include farmers, are the ones who start the distribution process. They are the manufacturers as well as the restaurants in which they have collaborated. The raw materials are then transported to restaurants, where they are transformed into finished goods that are then sold to the final customer. Then it's posted online for hungry and potential customers to order, and then it's delivered to them by delivery people or middlemen who serve as go-betweens between producers and consumers. The overall cost and profitability of a company will decrease if the supply chain is well managed. When one link breaks, the remainder of the chain can be harmed, which can be costly.