Free Shipping Beyond the Platforms: The Case of Amazon's Buy with Prime

Addressing the shipping burden associated with online purchases, membership-based free shipping (MFS) programs have become popular over the last decade. Recently, some platforms have extended these programs, enabling consumers to get free shipping even when purchasing from external sources. While this extension offers the potential for additional revenue, it also pits platform sellers against external counterparts, potentially cannibalizing platform sales analogous to a manufacturer experiencing a decline in sales of existing products while extending his product line. We examine the impacts of extended MFS programs using a game-theoretic model. Contrary to common belief, we find that these programs can enhance the platform's core business by bolstering its profitability. It may increase the commission revenue and/or reduce the fulfillment costs related to member consumers' purchases on the platform. Our results underscore the nuanced implications of extended MFS, challenging the notion of viewing it solely as a LaaS for generating additional profit.