Please use this identifier to cite or link to this item:

Membership Free Shipping Programs: Effect on Competition and Optimality of Member Fees

File Size Format  
paper0486.pdf 572.2 kB Adobe PDF View/Open

Item Summary

Title:Membership Free Shipping Programs: Effect on Competition and Optimality of Member Fees
Authors:Wen, Zhong
Lin, Lihui
Game theory
Membership free shipping
Date Issued:04 Jan 2017
Abstract:Fee-based membership free shipping is an important shipping fee schedule in E-Commerce. This paper studies how the membership free shipping (MFS) program affects firm competition and how to set the membership fee optimally. We find MFS relaxes price competition. The firm that adopts MFS has a higher pricing band than the other firm. Both firms have positive profits, strictly better than when membership free shipping is not a choice. The MFS firm subsidizes subscribers, so the subscribers always have a lower average total cost (price plus shipping fee) per order. The MFS firm could still earn a higher profit than the other firm, although the MFS firm's profit excluding membership fee is lower than that of the other firm. The paper also characterizes how to set the optimal membership fee and shows that an intermediate percentage of subscribers is optimal for the firm that adopts the free shipping program.
Pages/Duration:5 pages
Rights:Attribution-NonCommercial-NoDerivatives 4.0 International
Appears in Collections: Electronic Marketing Minitrack

Please email if you need this content in ADA-compliant format.

This item is licensed under a Creative Commons License Creative Commons