A cost-benefit analysis of Amazon Prime Air

Abstract

This paper analyzes the costs and benefits of the newly proposed Amazon Prime Air delivery system that uses drone technology to deliver packages to customers’ doorsteps. The paper sets forth a benefit-cost analytical framework to examine the technology for the benefits of labor-saving technology, faster delivery, and the advantage of being first versus the costs of operating the drone system. This analysis is conducted by modeling the Prime Air system for Chattanooga, TN. The model addresses FAA regulations, drone design, logistics, and related factors to predict how Amazon might set up and operate the drone system. Amazon’s goal is to increase its profitability through the application of new technology resulting in a better product (a delivery system) for a subset of its customers. Through this analysis, the paper weighs the potential costs and benefits associated with the innovation and implementation of the Prime Air drone delivery system. This analysis will determine if delivery by drone is more cost effective than ground delivery as well as how Amazon could gain revenue to fund the system. As discussed, the drone delivery system has the potential to give Amazon a comparative advantage over its competitors as well as revolutionize the transportation and delivery industries