Platform Design and Operations in the Last-Mile of the Supply Chain

Platform business models have become pervasive in many aspects of the economy,particularly in the areas experiencing rapid growth such as retailing (e.g., Amazon and eBay) and last-mile transportation (e.g., Instacart and Amazon Flex). The popularity of platform business models is, in part, due to the asset-light prospect which allows businesses to maintain flexibility while scaling up their operations. Yet, this ease of growth may not necessarily be conducive to viable outcomes. Because scalability in a platform depends on the intermediary’s role it plays in facilitating matching between users on each side of the platform, the efficiency of matching could be eroded as growth increases search frictions and matching costs. This phenomenon is demonstrated in recent studies on platform growth (e.g. Fradkin, 2017; Lian and Van Ryzin, 2021; Li and Netessine, 2020). To sustain scalability during growth, platforms must rely on effective platformdesign to mitigate challenges arising in facilitating efficient matching. Market design differs in its focus between retail and last-mile transportation platforms. In retail platforms, platform design’s emphasis is on helping consumers navigate through a variety of product offerings to match their needs while connecting vendors to a large consumer base (Dinerstein et al., 2018; Bimpikis et al., 2020). Because these platforms exist to manage two-sided demand, scalability depends on the realization of indirect network economies where benefits for users to participate on the platforms are commensurate with the size of users on the other side (Parker and Van Alstyne, 2005; Armstrong, 2006; Rysman, 2009). Thus, platform design plays a critical role in the realization of indirect network economies on retail platforms. Last-mile transportation platforms manage independent drivers on one side andretailers on the other, both parties holding flexibility in switching between platforms. High demand for independent drivers along with their flexibility in work participation induces platforms to use subsidies to incentivize retention. This leads to short-term improvements in retention at the expense of significant increases in platforms’ compensation costs. Acute challenges to driver retention call for effective compensation strategies to better coordinate labor participation from these drivers (Nikzad, 2017; Liu et al., 2019; Guda and Subramanian, 2019). In addition to driver turnover, retailers’ withdrawal can undermine the operating efficiency of last-mile transportation platforms (Borsenberger et al., 2018). This dissertation studies platforms’ scalability and operational challenges faced by platforms in the growth.