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Using Return Polices to Elicit Retailer Information


Author Info

  • Anil Arya

    (Ohio State University)

  • Brian Mittendorf

    (Yale School of Management)


We show that a manufacturer may prefer to offer a return policy when dealing with a retailer who holds advance knowledge about market conditions. Roughly stated, the manufacturer offers a liberal return allowance in lieu of a lower price to satisfy a retailer facing unfavorable market conditions. A retailer facing favorable conditions finds this tradeoff unattractive because he is likely to sell the merchandise anyway and thus not make as much use of the generous return terms. As a consequence, a retailer is less inclined to misstate market conditions. By serving as an additional control instrument, a returns policy reduces the manufacturer's need to ration (cut) production.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 35 (2004)
Issue (Month): 3 (Autumn)
Pages: 617-630

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Handle: RePEc:rje:randje:v:35:y:2004:3:p:617-630

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Cited by:
  1. Bel, Roland & Smirnov, Vladimir & Wait, Andrew, 2012. "On Broadway and strip malls: how to make a winning team," Working Papers, University of Sydney, School of Economics 2012-14, University of Sydney, School of Economics.
  2. Babich, Volodymyr & Li, Hantao & Ritchken, Peter & Wang, Yunzeng, 2012. "Contracting with asymmetric demand information in supply chains," European Journal of Operational Research, Elsevier, Elsevier, vol. 217(2), pages 333-341.


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