DoorDash’s “Pizza Arbitrage” Exposes Systemic Faults in Delivery App Economy
It’s All Fun & Games, but what about Reality?
On May 17th, economics reporter Ranjan Roy of The Margins shared a story about a friend of his— a New York City pizzeria owner who realized a hole in DoorDash‘s business model and decided to take advantage of it.
The story went something like this… Roy’s friend runs AJ’s NY Pizzeria, a dine-in and take-out pizza joint in Manhattan. The restaurant does not do delivery, but the owner somehow started getting complaints about faulty orders coming to their houses. After some investigation, it became clear that the deliveries were carried out via DoorDash, an app that set up a delivery option right on the restaurant’s Google Listing without permission.
What was more conspicuous, however, was that DoorDash was charging $16 for pizzas that should have costed $24. At Roy’s suggestion, AJ’s owner decided to do a little experiment, ordering a large number of pizzas from his own store using DoorDash. Because of the app’s underpricing, AJ’s ended up turning a profit by doing this. Testing the app even further, the owner started ordering more pizzas from himself, but began filling the boxes with nothing but dough. DoorDash never caught on, and he flipped an easy $8 for every “pizza” that the delivery driver came to pick up.
Ultimately, AJ’s made a couple risk-free hundred bucks from this trial. Roy dubbed the story “Pizza Arbitrage,” a fun parable of a local business beating out the corporate middleman. Nevertheless, as Roy and other economics reporters have fleshed out, AJ’s DoosDash experiment demonstrates the immense flaws in the seemingly ubiquitous delivery app economy.
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DoorDash’s underpricing of AJ’s pizzas was a mistake. However, its shortsightedness, exploitation, and wastefulness exhibited throughout the situation were not anomalous. First off, the fact that DoorDash unwarrantedly inserted itself into AJ’s Google Listing is business-as-usual for most apps of the kind. Even through AJ’s does not do delivery itself, DoorDash has made it look like a seamless part of the restaurant’s platform. Therefore, if DoorDash messes up on a delivery, it still ends up reflecting poorly on AJ’s from a consumer’s limited point of view.
The app operates similarly for restaurants that offer delivery as well, yet this creates even more damage, as DoorDash then takes away from that established aspect of the business. Suddenly, restaurants are not profiting off of their delivery service, facing a twisted internal competition as their own employees are cheated out of essential work and tips.
Then, even when things go according to plan for DoorDash, it rarely turn a sufficient profit for itself. In the longterm, these apps are hardly sustainable. DoorDash reportedly lost $450 million in 2019. Similar services like GrubHub, Uber Eats, and Postmates saw comparable losses, and a clear rebound is not on the horizon for any of them.
Phantom Toll Both or Actual Service Upgrade?
For all the damage these apps do by intervening with small businesses and rerouting the economy in unstable directions, the sad reality is that they are not even subsisting well enough for themselves. Mergers and buyouts seem like the only possibility for these companies to stay relevant in the future, but given their deplorable track records, it’s questionable whether even that is a good idea.
Essentially, these apps are only staying alive for the sake of competition rather than profit right now. Economics 101 will tell you that such is not a suitable business model in a capitalist system. In the end, economists reckon that the only winner amongst the delivery apps will be whatever service lasts the longest and beats out the others. At that point, though, it would probably just be easier—and more economical—for the delivery economy to go back to its fundamental roots, with in-house delivery rather than these intermediary apps.
Read More: Lynxotic Tech Coverage
DoorDash, UberEats, and other apps in this system are all vying to be the Amazon of their niche field. They are in a giant game of Monopoly, and everyone is losing. Another sad truth is that Amazon itself is overdue for an antitrust suit. Thus, these apps are fighting for a legally (not to mention ethically) dubious fantastical endgame. Even if a sole delivery service does survive this nonsensical competition, it may find out that its efforts were too exploitative to persist in a fair and equitable society all along.
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