Monday, April 29, 2019
12:00pm-1:00pm
Bahen Centre, Room 1240
40 St. George Street
This event is open to the public and registration is not required. Part of the Operations Research Seminar Series coordinated by Merve Bodur.
Abstract
Sales through online marketplaces have been steadily increasing. One of the fundamental differences between traditional and online shopping is the shipping and handling (S&H) operations. Any consumer who uses online shopping starts the transaction with the knowledge that the item needs to be shipped to the consumer at an additional cost (of money and/or time). This fundamental difference seems to have a significant effect on the demand-price interaction for online shopping. We hypothesize that free shipping has two separate causal implications on online sales: via price and an independent effect. Using sales transactions from an online marketplace where the platform owner determines the S&H costs for all sellers, we use an econometric approach and we establish that free shipping is endogenous in several model specifications we consider. We use instrumental variables (IV) and two stage least squares on panel data. Fixed effects methodology combined with two stage least squares, free us from the bias and inconsistency due to endogeneity. We also show how to validate IVs using graphical model learning algorithms and show how the causal results we obtain are consistently predicted by causal Bayesian machine learning techniques to check the robustness of our models. The results indicate that free shipping can increase sales and revenues significantly. This effect changes by product category. Free shipping increases the unit price of the product but decreases the total price paid by the customer in accordance with previous reports from the literature. Demand models for online sales should treat free shipping as endogenous to be more accurate. Category managers of sellers on online marketplaces should consider offering free shipping based on the characteristics of their products like volumetric weight and the strength of (price) competition.
Joint work with Seyhan Erden (Columbia University), A. Tolga Kalaycı (Istanbul Technical University).
Speaker Bio
Taner Bilgiç is a Professor in the Industrial Engineering Department of Boğazici University, Istanbul, Turkey. Currently he is on a sabbatical leave at the Desautels Faculty of Management at McGill University. He received his B.S. and M.S. degrees in Industrial Engineering from the Middle East Technical University. He completed his Ph.D. at the University of Toronto and worked as a Research Associate at the same university before joining Boğaziçi University in 1997. His research interests include decision theory and statistical causality, game-theoretic models for pricing and supply chain management.
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The Operations Research (OR) seminar series brings together graduate students, faculty and researchers from the University of Toronto community to interact with prominent scholars in the field of OR. Seminars feature visiting scholars from around the world as well as professors and post-docs. Topics include all variants of OR theory and their applications. Questions? Contact Merve Bodur at bodur@mie.utoronto.ca
