What's the Deal with Free Shipping?
thesisposted on 18.08.2020, 22:15 authored by Lyubov 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.|