A comparative study of returns contract with no returns contract under monopoly and duopoly settings

Manufacturers encourage the retailers to store more items by providing them a returns contract and protecting them against excess inventory. This study contemplates the distribution of products in a supply chain where the demand is sensitive to effort and price. Using a framework of game theory, the analysis highlights the impact of a manufacturer announcing a returns policy to the retailer when there is competition. Comparative analysis of offering a returns contract under competition with respect to no returns contract provides a better understanding about the repercussions and related facts on offering returns policy. Analytical results show that introducing returns policy under a monopolistic environment does not have an impact on the sales and it remains the same as in the case of no returns policy. On the other hand, introducing returns policy in duopolistic competition increases the manufacturer's profit for the same wholesale price.