The Impact of Online Food Delivery Services on Restaurant Sales Jack Collison∗ Department of Economics, Stanford University Advised by Professor Liran Einav Spring, 2020 Abstract The rapid growth of online food delivery services has disrupted the traditionally offline restaurant industry. This study presents empirical evidence on the crowding-out effects and market expansions induced by the staggered entry of online food delivery services. Difference-in-differences methodology reveals that 30-50 cents of every dollar spent on online food delivery services are incremental, while the rest is drawn away from brick- and-mortar sales. These findings are statistically significant at the zip code-level and are heterogeneous across different types of consumption, suggesting that convenience and pre-existing spending habits drive the level of substitution. Conducting analyses on a year-by-year basis suggests that there is an increasing level of cannibalization of brick-and-mortar restaurant sales. Back-of-the-envelope calculations show an increase in restaurants' revenues but a decrease in profitability. Keywords: E-commerce, market expansion, sales cannibalization ∗E-mail address:
[email protected]. I am extremely grateful to my advisor, Professor Liran Einav, for his excellent guidance, input, and advice. I would like to thank Honors program director Marcelo Clerici- Arias and Sebasti´anOtero for assisting me in the process of developing a thesis. I would also like to thank Professor Pete Klenow, Ben Klopack, Toren Fronsdal, and the other faculty and graduate students who have given me feedback and advice. Finally, I would like to thank Suresh Vaidyanathan, Larry Levin, and all other members of Visa who have supported me.