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A search model of costly product returns

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  • Petrikaitė, Vaiva

Abstract

This paper analyses a market in which consumers buy horizontally differentiated products without knowing their exact valuations. By paying return costs, the consumers may return less-preferred items and obtain refunds. The consumers shop sequentially and their shopping strategy is similar to the search strategy of a consumer in a sequential costly search model. Thus, the pricing strategies of firms are identical to those in a price-directed sequential search model. Price competition is more intense, and the symmetric equilibrium price is lower when returns are costlier. As a result, consumer surplus is increasing in the return cost.

Suggested Citation

  • Petrikaitė, Vaiva, 2018. "A search model of costly product returns," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 236-251.
  • Handle: RePEc:eee:indorg:v:58:y:2018:i:c:p:236-251
    DOI: 10.1016/j.ijindorg.2017.06.003
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    References listed on IDEAS

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    Cited by:

    1. Haan, Marco A. & Moraga-González, José L. & Petrikaitė, Vaiva, 2018. "A model of directed consumer search," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 223-255.
    2. Yijuan Chen & Xiangting Hu & Sanxi Li, 2022. "Complementarity between online and offline channels for quality signaling," Journal of Economics, Springer, vol. 135(1), pages 49-74, January.

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    More about this item

    Keywords

    Return cost; Horizontal differentiation; Duopoly;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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