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Free or calculated shipping: Impact of delivery cost on supply chains moving to online retailing

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  • Shao, Xiao-Feng

Abstract

Shipping policy is an important element in the operations strategy for retailers moving online. In this study, we provide a framework to respectively investigate the impact of shipping policies in the multi-retailer and exclusive-retailer supply chains. We first develop an oligopoly model of price competition under calculated shipping policy and a Cournot model of quantity competition under free shipping policy in the supply chain with multiple competitive retailers. Our main finding is that while online retailing may result in a lower price for customers and a higher supply quantity for the supplier, none of the retailers can benefit from online move under calculated shipping policy, and only retailers with relatively small local market size may be better off under the free shipping policy. Both the supplier and customers prefer free shipping policy. For the supply chain consisting of an exclusive retailer, we develop a geographical pricing model and a uniform pricing model. We find that shipping policies with or without charges make no difference under geographical pricing approach. Under uniform pricing approach, customers in regions with shipping costs lower than the weighted average shipping cost prefer calculated shipping policy, while those in regions with shipping costs higher than the weighted average shipping cost prefer free shipping policy.

Suggested Citation

  • Shao, Xiao-Feng, 2017. "Free or calculated shipping: Impact of delivery cost on supply chains moving to online retailing," International Journal of Production Economics, Elsevier, vol. 191(C), pages 267-277.
    • Handle: RePEc:eee:proeco:v:191:y:2017:i:c:p:267-277
    DOI: 10.1016/j.ijpe.2017.06.022
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    Cited by:

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    2. Cheng-An Tsai & Che-Wei Chang, 2022. "Development of a Partial Shipping Fees Pricing Model to Influence Consumers’ Purchase Intention under the COVID-19 Pandemic," Energies, MDPI, vol. 15(5), pages 1-16, March.
    3. T. M. Rofin & Biswajit Mahanty, 2021. "Fulfillment mode selection for Indian online sellers under free and flat rate shipping policies," Electronic Commerce Research, Springer, vol. 21(2), pages 263-296, June.
    4. Di Li & Hu Wang, 2022. "Effects of retailers' free shipping promotions on manufacturers' product sales and product review ratings in multichannel retailing," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 1912-1925, September.
    5. Urvashi Tandon & Amit Mittal & Sridhar Manohar, 2021. "Examining the impact of intangible product features and e-commerce institutional mechanics on consumer trust and repurchase intention," Electronic Markets, Springer;IIM University of St. Gallen, vol. 31(4), pages 945-964, December.
    6. Witek-Hajduk Marzanna Katarzyna & Grudecka Anna, 2022. "Consumer intentions to purchase on foreign multi-sided digital platforms: a context of the COVID-19 pandemic," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 58(2), pages 143-160, June.
    7. Hu Wang & Di Li & Changbin Jiang, 2023. "Online retailers' price structure decisions in competitive markets: A structure–conduct–performance framework," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1125-1141, March.
    8. Hu Wang & Di Li & Changbin Jiang & Yuxiang Zhang, 2023. "Exploring the Interactive Relationship between Retailers’ Free Shipping Decisions and Manufacturers’ Product Sales in Digital Retailing," Sustainability, MDPI, vol. 15(17), pages 1-19, August.
    9. Shao, Xiaofeng, 2021. "Omnichannel retail move in a dual-channel supply chain," European Journal of Operational Research, Elsevier, vol. 294(3), pages 936-950.
    10. Jianfeng Liu & Liguo Zhou & Yuyan Wang, 2021. "Altruistic Preference Models of Low-Carbon E-Commerce Supply Chain," Mathematics, MDPI, vol. 9(14), pages 1-20, July.
    11. Zhen Fang & Yi-Chun (Chad) Ho & Xue (Jane) Tan & Yong Tan, 2021. "Show Me the Money: The Economic Impact of Membership-Based Free Shipping Programs on E-Tailers," Information Systems Research, INFORMS, vol. 32(4), pages 1115-1127, December.

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