E-retailers´quality-based price discrimination strategies under multiple shipping options

In e-commerce, shipping is bundled with the purchase of product, which allows e-retailers to create vertical quality differentiation by offering multiple shipping options with some amount of market power, so it is possible for online sellers to use quality-variant of the same basic product to segment the market of heterogeneous consumers. This paper tests quality-based price discrimination model using data on shipping schedules offered by e-retailers. The results indicate that the quality of a slow shipping option is significantly associated with prices of faster shipping options in consistent with prediction of the price discrimination model.