[bluGill]

The ecconmics of airplanes is different and do not apply. Here you want enough people paying for the cheap service that it makes money so they don't kill it. There is no advantage to a class of service that doesn't pay for itself in this space, you just move up to the next one.

Actually the worst thing would be most people choosing this as they may decide that the cheaper class isn't worth serving at all.

[downerending]

I don't think this analysis is correct. No one's going to offer a service if it's cheaper not to, yes. But if there's only one class of service, you have to make $X on each order to cover your fixed costs. If there are multiple classes, the cheapest class could end up being $(0.8X) and still allow you to make more money overall.

[bluGill]

In an airplane the (.8x) works out because the seats are going anyway. I don't see how that works for Walmart where they can not do the delivery.

[aarong11]

Think of it as an SLA. People optimise for different outcomes, some people need their groceries in a 1 hour timeslot because they have other commitments.

[bluGill]

I agree, but what does that have to do with Walmart providing some class at a loss?

[downerending]

It's not at a loss, it's just at a rate they couldn't support if it were there only rate.

As a thought experiment, suppose there are a few local zillionaires start making "platinum" orders to local markets each day, with a $1M delivery charge. Will the markets stop accepting otherwise-profitable peon orders? No. That part is easy. But what will happen to the price of peon orders as the markets compete? They can afford to lower those prices a bit, since their fixed costs are spread across all customers, and the zillionaires are already paying the lion's share.

If you doubt this, imagine you run one of the markets and your competitor drops the price of his peon orders by five percent. Are you going to allow the competitor to take all of your business, forgoing the profit you'd otherwise earn?