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Tuesday, September 11, 2012

The Cost of Free Shipping on eBay

eBay encourages sellers to list their items with free shipping. They offer incentives like better placement on search results, higher feedback ratings from buyers (cost of shipping is always 5 stars with free shipping listings), and even reduced seller fees during limited promotions. They say buyers prefer purchasing items with free shipping.

In an auction setting is there such a thing as "free shipping"? Or do buyers bid more for auctions with free shipping thus increasing the price of the item?

For this study we compiled the prices for roughly 100 auctions for Madden 13 on Xbox 360 during the first week of availability. There were 28 auctions with free shipping and 70 auctions that charged for shipping. Below are the results:
madden 13 nfl prices
The average price for Madden 13 when free shipping is offered it $52.75, while the average game with a shipping charge is $49.35. A statistical test (t-test) shows there is a level of confidence these two averages are different (p-value of 0.000008).

The average shipping charge when it was applied cost $3.38 for a total cost of $52.73. Only two cents less than the game with free shipping, and no statistical difference between these two averages.

Free shipping on eBay does not save a customer any money at all. It is simply perceived as a better value.

8 comments :

mndrix said...

I'm impressed that the eBay market is efficient enough to bring the total price of these auctions within 0.03% of each other. Good to know.

Anonymous said...

I can understand this relation. I do have one question about your definition of auction.

My definition of auction is where you list an item for a set length of time and bids are placed on an item. However, it seems that there is a community that think fixed priced listings (those that are listed indefinitely and you set the price on sites like half.com, Amazon, and some listings on eBay) are auctions too.

Is your definition of auction the correct one?

Anonymous said...

I think there's another reason eBay encourages the free shipping. They get to take a bigger cut of the sale when it's all said and done. They take a percentage of the purchase price, but they don't touch the shipping cost, which means more cash for them.

JJ Hendricks said...

@anonymous - I'm not sure my definition is the "correct" one, but I used the definition of auction where an item's final price is set by bidding and not a fixed price.

@anonymous - Great point about eBay encouraging free shipping for added revenue. With each of these Madden auctions eBay makes an average of $0.50 more on free shipping auctions than ones with shipping. Not a ton, but with millions of listings per day that adds up really fast.

DarkKobold said...

Actually, Ebay now charges you fees on the "total cost to the buyer"

From the fees page:

"The total amount of the sale equals the cost of the item, shipping charges, and any other amounts you may charge the buyer. Sales tax is not included in the total amount of the sale."

http://pages.ebay.com/help/sell/fees.html#totalamount

So, perhaps ebay just ran the numbers JJ did, and saw that auctions that offer free shipping go for more.

I wonder how the return policy affects prices...

Anonymous said...

"Who doesn't like free shipping?" is ebay's mantra for forcing this marketing strategy upon sellers. Either offer free shipping or ebay will STEAL 9% off your shipping charges. It's downright theft, shipping costs are between the buyer and seller. Ebay slid their greasy paws in between to squeeze out more profits. Look at ebays stock price after July 15th, it jumped 20% from them cashing in on the shipping.

Anonymous said...

Really goes to show that there is no such thing as a free lunch. The cost of shipping will still be factored into the final price regardless of how the auction is set up.

Anonymous said...

To me the price is lower with free shipping because eBay Bucks doesn't accrue on the shipping portion that I pay for.

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