Research
Job Market Paper
“Fulfillment By Amazon and Prime: Who Benefits and How?” Draft
Amazon is known for its Prime shipping program, which offers fast, often two-day, delivery on eligible products. However, for most third-party sellers on the platform, obtaining Prime eligibility effectively requires using Amazon’s fulfillment service, Fulfillment by Amazon (FBA). The FTC has sued Amazon over this arrangement, arguing that tying Prime eligibility to FBA imposes additional costs on third-party sellers that rely on Amazon to reach consumers. But greater FBA adoption may generate efficiencies through economies of scale and the elimination of double marginalization between Amazon’s referral fee and FBA fee. To quantify the net effect, I build and estimate a model of consumer demand, sellers’ pricing and fulfillment choice, and Amazon’s joint setting of referral and FBA fees, and use it to evaluate counterfactual policies motivated by current policy discussions. I find that allowing sellers with sufficiently fast self-fulfillment to qualify for Prime without using FBA, as under Seller Fulfilled Prime, moderately benefits consumers while raising profits for both third-party sellers and Amazon. In contrast, banning Amazon from displaying the Prime badge altogether makes both consumers and sellers worse off. —