A few years ago Amazon.com introduced free shipping for U.S. orders over $25. A consumer who bought a single book for less than $25 would pay about $4 in shipping, but if adding a second book to the order brought the book total to at least $25, shipping was free. The free -shipping offer decreased the effective price of any book that pushed the book order over $25, and sales increased dramatically. In France, the company offered cheap but not free shipping for orders over $25. Crossing the $25 threshold cut the shipping charge to only 1 franc, about $0.20. In contrast with the U.S. experience, book sales increased by a relatively small amount.
The Amazon.com experiences in the United States and France illustrate a puzzle in consumer behavior. Cutting the shipping charge from $4 to $0 had a huge effect, but cutting the charge to $0.20 didn’t have much of an effect. Consumers are highly responsive to freebies, and many firms incorporate free goods and services into their marketing.