Extending free shipping to outside sellers can strengthen online marketplaces

BALTIMORE, Jan. 28, 2026 – Extending membership-based free shipping programs to third-party sellers can strengthen online marketplaces rather than cannibalize them, according to a new study published in the INFORMS journal Information Systems Research. The findings suggest that programs like Amazon’s “Buy with Prime” can boost marketplace commission revenue and reduce shipping burdens, even when logistics services themselves are not directly profitable.

The peer-reviewed study finds that when marketplaces extend free-shipping benefits beyond their own sellers to external merchants, the overall marketplace can become more profitable. While such programs are often assumed to divert sales from internal sellers, the research shows they can instead reinforce core revenue streams and improve marketplace efficiency.

The study “Unveiling the Strategic Impacts of Extending Membership-Based Free Shipping Programs Beyond the Online Marketplaces” was authored by Geng Sun of the University of Texas Rio Grande Valley, and Huseyin Cavusoglu and Srinivasan Raghunathan of the University of Texas at Dallas.

“Marketplaces often assume that extending free-shipping benefits beyond their own platforms must cannibalize their core business,” said Sun. “Our results show the opposite. Under many realistic conditions, these programs reinforce, not weaken, the marketplace’s existing revenue streams.”

Cavusoglu added, “The strategic interaction between marketplace sellers and external sellers fundamentally changes when the free-shipping benefit is extended. What looks like cannibalization at first glance can, in fact, create new pathways for marketplace profitability.”

Using a game-theoretic model of online retail competition, the study authors examined how an extended membership-based free-shipping (MFS) program changes pricing, consumer behavior and profitability for marketplaces, marketplace sellers, external sellers and consumers. They found that the program can strengthen the marketplace’s existing business even if the marketplace does not profit from logistics services provided to external sellers.

The researchers also found that both internal and external sellers can benefit from an extended free shipping program, so long as shipping costs stay within certain thresholds, while member shoppers may pay higher prices as competition dynamics shift.

The only stakeholder group negatively impacted on a consistent basis were non-members who pay for shipping regardless of where they purchase.

“Marketplaces can reduce shipping burdens or boost commission revenue through these extended programs,” said Sun. “Our analysis shows that even when logistics as a service (LaaS) is not directly profitable, the program can still enhance the profitability of the marketplace’s core operations.”

Raghunathan added, “This model helps explain why major marketplaces are experimenting with fulfillment services that extend beyond their own walls. The strategic benefits emerge not just from logistics, but from how sellers adapt their pricing and competitive behavior.”

Access the full study here.

About INFORMS and Information Systems Research

INFORMS is the world’s largest association for professionals and students in operations research, AI, analytics, data science and related disciplines, serving as a global authority in advancing cutting-edge practices and fostering an interdisciplinary community of innovation. Information Systems Research, a leading journal published by INFORMS, publishes pioneering research on information systems, digital platforms and technology-driven business strategy. INFORMS empowers its community to improve organizational performance and drive data-driven decision-making through its journals, conferences and resources. Learn more at www.informs.org or @informs.

Contact

Rebecca Seel

Public Affairs Specialist

rseel@informs.org

(443) 757-3578

Subscribe and stay up to date on the latest from INFORMS. 

Sign Up For Email Updates

# # #