From store to surplus food platform: Implications of competition in quantity‐based sales

Abstract

On quantity‐based surplus food platforms, retailers sell surplus bags containing the end‐of‐day leftovers from their stores. Each retailer's decisions on bag price, production quantity, and quantity reserved for surplus sales are complicated by: (i) interlink between reservation for surplus sales and ability to serve in‐store sales, (ii) uncertainty in the leftover quantity while having to ensure a guaranteed minimum quantity for the bag, (iii) intricate relationships among different contextual factors (e.g., consumer consumption needs, consumer valuation of the bag, and platform discount rate), and (iv) competition among retailers. We identify conditions under which the retailer should increase the bag price to improve the profit margin on surplus bags and/or reduce unmet demand from in‐store sales, highlighting the need to carefully balance retailer‐, consumer‐, and platform‐specific factors. Interestingly, compared with a no‐competition benchmark, competition can lead to a higher bag price, more food reserved for surplus sales, and less food available for in‐store sales. More importantly, we offer three key insights regarding resulting outcomes. First , competition (versus no‐competition) can yield higher consumer surplus, higher retailer's profit, and lower food waste (e.g., when the discount rate is low, and consumers' valuation of surplus bags is high). Second , intense competition can reduce retailer's profit and exacerbate food waste, suggesting that having more retailers may result in unintended consequences. Third , platforms can mitigate these consequences by leveraging the discount rate. For instance, in areas with many competing retailers and many consumers with small consumption needs, platforms should set the discount rate low.