Department of Economics
Amazon Prime and "Free" Shipping
- Author(s): Steffens, Isabel
- Advisor(s): Kuhn, Peter
- et al.
This thesis outlines how Amazon prices its items differently for Amazon Prime and non-Prime customers. I use data on prices from Amazon.com to show that prices are on average higher for Amazon Prime members than non-Prime customers. I show that selecting Free One-Day Shipping while searching for an item as an Amazon Prime member causes the list price to be on average higher than the list price for the same item for a non-Prime member. So, while one-day shipping is advertised as “free” to Prime members, these customers end up paying for the shipping via higher prices. In addition, searching up an item in the morning increases the likelihood of seeing a higher list price as a Prime member. Consumable items are also more likely to be priced differently for Prime versus non-Prime members than non-consumable items. I find that the pass-through cost of shipping to Amazon Prime customers is positive, further suggesting that Prime customers pay for “free” shipping through higher prices of goods. Amazon engages in price discrimination towards Prime members based on the type of item, the time ths item is searched up, and the mode of shipping the customer selects for the item.