The Distributional Effects of 'Fulfilled By Amazon' (FBA)

Abstract

We provide an economic model of an e-commerce retail platform (e.g., Amazon) that offers a fulfillment service (e.g., "Fulfilled By Amazon") to merchants that sell on its platform. We demonstrate that the introduction of such a service generates distributional effects for the platform participants. In particular, while such a service benefits low service quality merchants and consumers, it also reduces welfare for high service quality merchants. We compare the economic implications of introducing the fulfillment service when it is optimally designed by the platform or an independent logistics company. We show that the distributional welfare effects are more pronounced when the platform provides the fulfillment service thereby demonstrating the impact that dual ownership of the platform and fulfillment service has on participant welfare.

Keywords: Amazon, FBA, E-commerce Platform

JEL Classification: D2, D4, L11, L12