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Managing Consumer Returns in a Competitive Environment

Author

Listed:
  • Jeffrey D. Shulman

    (Michael G. Foster School of Business, University of Washington, Seattle, Washington 98195)

  • Anne T. Coughlan

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

  • R. Canan Savaskan

    (Cox School of Business, Southern Methodist University, Dallas, Texas 75275)

Abstract

This paper investigates the pricing and restocking fee decisions of two competing firms selling horizontally differentiated products. We model a duopoly facing consumers who have heterogeneous tastes for the products and who must experience a product before knowing how well it matches with their preferences. The analysis yields several key insights. Restocking fees not only can be sustained in a competitive environment, but also are more severe when consumers are less informed about product fit and when consumers place a greater importance on how well products' attributes fit with their preferences. We compare the competitive equilibrium prices to a scenario in which consumers are certain about their preferences and find conditions defining when consumer uncertainty results in higher equilibrium prices. Comparison to a monopoly setting yields a surprising result: Equilibrium restocking fees in a competitive environment can be higher than those charged by a monopolist. This paper was accepted by Jagmohan S. Raju, marketing.

Suggested Citation

  • Jeffrey D. Shulman & Anne T. Coughlan & R. Canan Savaskan, 2011. "Managing Consumer Returns in a Competitive Environment," Management Science, INFORMS, vol. 57(2), pages 347-362, February.
    • Handle: RePEc:inm:ormnsc:v:57:y:2011:i:2:p:347-362
    DOI: 10.1287/mnsc.1100.1274
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    References listed on IDEAS

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