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Consumer Search and Product Returns in E-Commerce

Author

Listed:
  • Maarten Janssen
  • Cole Williams

Abstract

E-commerce has led to a surge in products being returned after purchase. We analyze product returns as resulting from a trade-off between the social waste of returns and the search efficiency gains of being able to inspect a product's value after purchase. We find whenever returns are efficient, the market generates too few returns, as the parties involved in the transaction do not internalize the welfare benefit of consumers continuing their search, generating profits for other firms. We also show, despite their consumer-friendly appearance and the private cost of returns, firms may benefit and capture the gains from less costly search.

Suggested Citation

  • Maarten Janssen & Cole Williams, 2024. "Consumer Search and Product Returns in E-Commerce," American Economic Journal: Microeconomics, American Economic Association, vol. 16(2), pages 387-419, May.
  • Handle: RePEc:aea:aejmic:v:16:y:2024:i:2:p:387-419
    DOI: 10.1257/mic.20230040
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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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