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Customer Return Policies for Experience Goods

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  • Che, Yeon-Koo

Abstract

This paper studies the economic rationale for customer return policies by focusing on the 'experience goods' aspect of many products. Return policies allow consumers to defer their purchasing decisions until after they gain some experience with goods. In so doing, they insure consumers against ex post loss, which allows a monopoly seller to charge more than otherwise. It is shown that the seller adopts the return policy when consumers are highly risk averse or retail costs are high. Consumers are strictly better-off under the return policy but there is too little adoption of the policy in equilibrium. Copyright 1996 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 44 (1996)
Issue (Month): 1 (March)
Pages: 17-24

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Handle: RePEc:bla:jindec:v:44:y:1996:i:1:p:17-24

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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Cited by:
  1. Justin P. Johnson & David P. Myatt, 2006. "On the Simple Economics of Advertising, Marketing, and Product Design," American Economic Review, American Economic Association, vol. 96(3), pages 756-784, June.
  2. Alessandro Acquisti, 2014. "Inducing Customers to Try New Goods," Review of Industrial Organization, Springer, vol. 44(2), pages 131-146, March.
  3. Bouckaert, Jan & Degryse, Hans, 1998. "Price Competition Between an Expert and a Non-Expert," CEPR Discussion Papers 1905, C.E.P.R. Discussion Papers.
  4. Chen, Jing & Grewal, Ravneet, 2013. "Competing in a supply chain via full-refund and no-refund customer returns policies," International Journal of Production Economics, Elsevier, vol. 146(1), pages 246-258.
  5. Steven A. Matthews & Nicola Persico, 2007. "Information Acquisition and Refunds for Returns," Carlo Alberto Notebooks 54, Collegio Carlo Alberto.
  6. Roman Inderst & Marco Ottaviani, 2013. "Sales Talk, Cancellation Terms and the Role of Consumer Protection," Review of Economic Studies, Oxford University Press, vol. 80(3), pages 1002-1026.
  7. Chen, Yongmin & Hua, Xinyu, 2010. "Ex ante Investment, Ex post Remedy, and Product Liability," MPRA Paper 22031, University Library of Munich, Germany.
  8. Steven A. Matthews & Nicola Persico, 2005. "Information Acquisition and the Excess Refund Puzzle," PIER Working Paper Archive 05-015, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  9. Huang, Ximin & Gu, Jia-Wen & Ching, Wai-Ki & Siu, Tak-Kuen, 2014. "Impact of secondary market on consumer return policies and supply chain coordination," Omega, Elsevier, vol. 45(C), pages 57-70.
  10. Zhang, Jun, 2013. "Revenue maximizing with return policy when buyers have uncertain valuations," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 452-461.
  11. Alexandre Gaudeul, 2004. "Shareware competition: Selling an experience," Game Theory and Information 0409008, EconWPA.
  12. Xiao, Tiaojun & Shi, Kuiran & Yang, Danqin, 2010. "Coordination of a supply chain with consumer return under demand uncertainty," International Journal of Production Economics, Elsevier, vol. 124(1), pages 171-180, March.
  13. Andreoni,J., 2005. "Trust, reciprocity, and contract enforcement : experiments on satisfaction guaranteed," Working papers 7, Wisconsin Madison - Social Systems.
  14. Amir Heiman, 2010. "The economics of demonstrations: The effect of competition on demonstration and pricing strategies," Marketing Letters, Springer, vol. 21(4), pages 351-363, December.
  15. Inderst, Roman & Tirosh, Gilad, 2011. "Refunds as a Metering Device," MPRA Paper 53846, University Library of Munich, Germany.
  16. Ruiz-Benitez, Rocio & Muriel, Ana, 2014. "Consumer returns in a decentralized supply chain," International Journal of Production Economics, Elsevier, vol. 147(PC), pages 573-592.
  17. Li, Yongjian & Xu, Lei & Li, Dahui, 2013. "Examining relationships between the return policy, product quality, and pricing strategy in online direct selling," International Journal of Production Economics, Elsevier, vol. 144(2), pages 451-460.
  18. Hao Li & Xianwen Shi, 2013. "Discriminatory Information Disclosure," Working Papers tecipa-497, University of Toronto, Department of Economics.

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