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The impact of customer returns and bidirectional option contract on refund price and order decisions

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  • Wang, Chong
  • Chen, Jing
  • Chen, Xu

Abstract

This study investigates the impacts of customer returns and a bidirectional option contract on a newsvendor firm's refund price and order decisions. The stochastic demand is refund price-sensitive. We show that the optimal refund price increases with the option price and decreases with both the wholesale and exercise prices, while the optimal order quantity increases with the exercise price, but decreases with both the wholesale and option prices. Furthermore, we illustrate that in the presence of customer returns, the optimal refund price and order quantity decrease; the firm should cut the refund price and order more products if a bidirectional option contract is available. We identify the conditions under which a firm should offer a full, partial, or no refund policy. We also show that a bidirectional option contract can reduce the negative impact of customer returns and enhance the firm's profit, especially under high demand uncertainty.

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  • Wang, Chong & Chen, Jing & Chen, Xu, 2019. "The impact of customer returns and bidirectional option contract on refund price and order decisions," European Journal of Operational Research, Elsevier, vol. 274(1), pages 267-279.
    • Handle: RePEc:eee:ejores:v:274:y:2019:i:1:p:267-279
    DOI: 10.1016/j.ejor.2018.09.023
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    4. Alireza Bakhshi & Jafar Heydari, 2023. "An optimal put option contract for a reverse supply chain: case of remanufacturing capacity uncertainty," Annals of Operations Research, Springer, vol. 324(1), pages 37-60, May.
    5. Taiguang Gao & Kui Wang & Yali Mei & Shan He & Yanfang Wang, 2022. "Supply Chain Pricing Models Considering Risk Attitudes under Free-Riding Behavior," Mathematics, MDPI, vol. 10(10), pages 1-22, May.
    6. Yan, Nina & Zhang, Yaping & Xu, Xun & Gao, Yongling, 2021. "Online finance with dual channels and bidirectional free-riding effect," International Journal of Production Economics, Elsevier, vol. 231(C).
    7. Liu, Shuai & Hua, Guowei & Cheng, T.C.E. & Dong, Jingxin, 2021. "Unmanned vehicle distribution capacity sharing with demand surge under option contracts," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    8. Huang, Zongsheng & Huang, Lingchen & Zhao, Yingxue & Meng, Xiaoge, 2021. "Money-back guarantee in the presence of strategic customer behavior," International Journal of Production Economics, Elsevier, vol. 239(C).
    9. Deng Jia & Chong Wang, 2022. "Option Contracts in Fresh Produce Supply Chain with Freshness-Keeping Effort," Mathematics, MDPI, vol. 10(8), pages 1-24, April.
    10. Mandal, Prasenjit & Basu, Preetam & Saha, Kushal, 2021. "Forays into omnichannel: An online retailer’s strategies for managing product returns," European Journal of Operational Research, Elsevier, vol. 292(2), pages 633-651.
    11. Zhang, Qiao & Chen, Jing & Chen, Bintong, 2021. "Information strategy in a supply chain under asymmetric customer returns information," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 155(C).
    12. Zhang, Zhichao & Xu, Haiyan & Zhao, Yingxue & Liu, Zhi & Chen, Kebing, 2023. "Extended warranty service provision: A strategic analysis for the E-commerce platform supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 177(C).
    13. Jiarong Luo & Xu Chen & Chong Wang & Gaoxun Zhang, 2021. "Bidirectional options in random yield supply chains with demand and spot price uncertainty," Annals of Operations Research, Springer, vol. 302(1), pages 211-230, July.

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