Start Date
10-12-2017 12:00 AM
Description
We examine membership-based free shipping (MFS) in which an online retail platform pays for the shipping costs for each member that has paid a membership fee. We find that the MFS program leads to demand enhancement, price increasing, and negative externality effects. It benefits the platform when the shipping cost is not too high or the platform’s commission rate is not too low. The MFS program hurts non-members always and even members under some conditions. The platform’s shipping cost in serving the members exceeds the membership revenue it generates from them. Therefore, judging the MFS program solely based on the membership fee and shipping cost is misleading. The sellers on the platform are the only party that always benefits under the MFS program. Finally, society can be worse off under MFS because it may overstimulate the demand at the expense of the shipping cost borne by the platform.
Recommended Citation
Sun, Geng; Cavusoglu, Huseyin; and Raghunathan, Srinivasan, "An Analysis of Membership-Based Free Shipping Programs of Online Marketplaces" (2017). ICIS 2017 Proceedings. 2.
https://aisel.aisnet.org/icis2017/Economics/Presentations/2
An Analysis of Membership-Based Free Shipping Programs of Online Marketplaces
We examine membership-based free shipping (MFS) in which an online retail platform pays for the shipping costs for each member that has paid a membership fee. We find that the MFS program leads to demand enhancement, price increasing, and negative externality effects. It benefits the platform when the shipping cost is not too high or the platform’s commission rate is not too low. The MFS program hurts non-members always and even members under some conditions. The platform’s shipping cost in serving the members exceeds the membership revenue it generates from them. Therefore, judging the MFS program solely based on the membership fee and shipping cost is misleading. The sellers on the platform are the only party that always benefits under the MFS program. Finally, society can be worse off under MFS because it may overstimulate the demand at the expense of the shipping cost borne by the platform.