posted on 2020-08-18, 22:15authored byLyubov Zeylikman
E-commerce
giants like Amazon Prime and Zappos are known for their offering of
unconditional free shipping on purchases. However, while the results are
clear, the reasons why this phenomenon occurs are not. We develop an
experimental model based on Michael Lewis’ and Yinghui Yang’s findings which
support that medium thresholds for free shipping incentivize consumers to buy
higher quantities of goods more than low, high, and free shipping thresholds.
In our model we also include a fixed shipping rate condition with no option
to earn free shipping. We report the results of an experiment to test the
effects of offering varied schedules for earning free shipping in a simulated
online shopping environment. 34 Carnegie Mellon students participated in an
experiment with a given endowment and shopping list, to purchase items across
3 periods, per 6 different conditions. The performance during the experiment
was judged based on whether the participant performed optimally. Results are
in agreement with the model, supporting that the medium threshold condition
incentivizes participants to buy higher quantities of goods more than other
conditions.