Unveiling the Strategic Impacts of Extending Membership-Based Free Shipping Programs Beyond the Online Marketplaces

Online marketplaces are increasingly extending their membership-based free shipping (MFS) programs to include external sellers, transforming logistics capabilities into a “logistics-as-a-service” (LaaS) model. This study uses a game-theoretic approach to analyze the implications of such extensions, with Amazon as a leading example. Contrary to the widespread belief that LaaS is a stand-alone profit center, our findings reveal that the primary value of extended MFS lies in enhancing the marketplace’s core business. By attracting member consumers and optimizing fulfillment operations, marketplaces can increase commission revenues and reduce per-order logistics costs—even if LaaS itself operates at a loss. Importantly, this strategy can benefit the broader marketplace ecosystem, including both internal and external sellers and member consumers, while potentially disadvantaging nonmembers. For practitioners and policymakers, these results underscore the need to rethink competitive dynamics and pricing strategies in digital platforms. Rather than viewing extended MFS solely as a logistics monetization tool, it should be seen as a strategic lever for shaping marketplace structure, seller participation, and consumer behavior.