Can free-shipping hurt online retailers?

Ricard Gil, Evsen Korkmaz and Ozge Sahin ()
Additional contact information
Evsen Korkmaz: Data Scientist at Unilever
Ozge Sahin: Johns Hopkins Carey Business School

Quantitative Marketing and Economics (QME), 2020, vol. 18, issue 3, No 3, 305-342

Abstract: Abstract In this paper, we investigate optimal pricing strategies for an online grocery retailer that derives its profits from delivery fees and grocery sales. We base our theoretical framework on the well-established work of Schmalensee (Bell Journal of Economics12(2), 445–466, 1981) in two-part pricing, while allowing for repeat purchase occasions. We derive testable implications that we take to data using a unique dataset detailing transaction information from an online grocery retailer in a Western European country. We find that an increase in the number of deliveries is associated with a greater-than-proportional increase in grocery sales, implying that preferences for deliveries and groceries are negatively correlated. Therefore, counter to the current popularity of free shipping, the observed strategy of discounting groceries and charging high delivery fees appears to be optimal in our empirical setting.

Keywords: Metering; Price discrimination; Online grocery sales (search for similar items in EconPapers)
JEL-codes: L11 L86 M20 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1007/s11129-020-09225-8 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:qmktec:v:18:y:2020:i:3:d:10.1007_s11129-020-09225-8

Ordering information: This journal article can be ordered from
http://www.springer. ... ng/journal/11129/PS2

DOI: 10.1007/s11129-020-09225-8

Access Statistics for this article

Quantitative Marketing and Economics (QME) is currently edited by Pradeep Chintagunta

More articles in Quantitative Marketing and Economics (QME) from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().