Regulating crowdsourced delivery under urban congestion: The role of order consolidation

Order consolidation in on-demand delivery services presents a critical trade-off among logistical efficiency, customer satisfaction, and urban congestion. This paper investigates the strategic decisions of stakeholders in this system and evaluates regulatory policies designed to mitigate market distortions and negative externalities. To do so, we develop a game-theoretic equilibrium framework of a two-sided delivery market that endogenizes both order consolidation and traffic congestion. Our analysis reveals that while a social planner operates at zero profit in an uncongested market, positive profits can be socially optimal once congestion externalities are accounted for. We identify a conditional consolidation-regime condition, evaluated at a given operating scale, based on two competing forces: the marginal congestion externality and the platform’s courier fleet-supply cost pressure. This condition determines whether the platform under- or over-consolidates relative to the social benchmark at that operating scale. We show that a single policy may be ineffective at steering the platform toward the first-best outcome. A commission cap paired with a physical bundling constraint is effective. We further extend the model to capture network capacity degradation from curbside parking friction. This extension shows how curbside friction affects the marginal traffic externality of delivery activity and can shift the consolidation regime.