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Inventories, Manufacturer Returns Policies, and Equilibrium Price Dispersion under Demand Uncertainty

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  • Howard P. Marvel
  • Hao Wang
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    Abstract

    "Returns policies can prevent a manufacturer's product from being discounted. Such discounting discourages inventory holdings, and can deny adequate retail representation to products with uncertain demand. We demonstrate that returns are not simply a substitute for resale price maintenance, but can instead be employed to support a desirable degree of price dispersion at retail. Surprisingly, optimal return policies depend only on market demand functions and marginal production costs. The manufacturer need not know the distribution of demand uncertainty for its product, but can instead rely on retailers to order appropriately. Our results generalize to oligopoly settings." Copyright 2007, The Author(s) Journal Compilation (c) 2007 Blackwell Publishing.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

    Volume (Year): 16 (2007)
    Issue (Month): 4 (December)
    Pages: 1031-1051

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    Handle: RePEc:bla:jemstr:v:16:y:2007:i:4:p:1031-1051

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    Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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    Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

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    Cited by:
    1. Matsui, Kenji, 2010. "Returns policy, new model introduction, and consumer welfare," International Journal of Production Economics, Elsevier, vol. 124(2), pages 299-309, April.
    2. Tatsuhiko Nariu & David Flath & Atsuo Utaka, 2012. "Returns System With Rebates," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1243-1256, November.
    3. Marvel, Howard P. & Wang, Hao, 2009. "Distribution contracts to support optimal inventory holdings under demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 625-631, September.

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