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Return policies, market outcomes, and consumer welfare

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  • Tatyana Chesnokova

Abstract

. The effect of return policies on market outcomes is studied in a model where consumers differ in their valuations of time. Product reliability is identified with defect rates. Producers first choose reliability levels and then compete in prices. For given defect rates, allowing returns makes products closer substitutes, enhancing competition and reducing prices. Being closer substitutes makes higher reliability less worthwhile, which reduces reliability. While the decrease in reliability reduces consumer welfare, the decrease in prices raises it. The latter dominates, so that aggregate consumer welfare increases with return policy. L'effet des politiques de remboursement sur les résultats du marché est examiné dans le cadre d'un modèle où les consommateurs ont des évaluations différentes de la valeur de leur temps. La fiabilité des produits est mesurée par leur taux de défectuosité. Les producteurs choisissent d'abord des niveaux de fiabilité, et ensuite se concurrencent par les prix. Pour des niveaux de défectuosité donnés, permettre de retourner le produit rend les produits davantage des substituts, accroît la concurrence, et réduit les prix. Une plus grande substituabilité rend la fiabilité moins importante, et donc réduit la fiabilité. Alors que la chute de la fiabilité réduit le bien‐être du consommateur, la chute des prix l'accroît. Ce second effet domine, ce qui fait que le bien‐être agrégé du consommateur s'accroît quand il y a politique de remboursement.

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  • Tatyana Chesnokova, 2007. "Return policies, market outcomes, and consumer welfare," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(1), pages 296-316, February.
    • Handle: RePEc:wly:canjec:v:40:y:2007:i:1:p:296-316
    DOI: 10.1111/j.1365-2966.2007.00409.x
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    References listed on IDEAS

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    Cited by:

    1. Pei, Zhi & Paswan, Audhesh & Yan, Ruiliang, 2014. "E-tailer׳s return policy, consumer׳s perception of return policy fairness and purchase intention," Journal of Retailing and Consumer Services, Elsevier, vol. 21(3), pages 249-257.
    2. Yan, Ruiliang & Pei, Zhi, 2019. "Return policies and O2O coordination in the e-tailing age," Journal of Retailing and Consumer Services, Elsevier, vol. 50(C), pages 314-321.
    3. Dmitry Lubensky & Eric Schmidbauer, 2020. "Free Product Trials: Disclosing Quality And Match Value," Economic Inquiry, Western Economic Association International, vol. 58(4), pages 1565-1576, October.
    4. Joaquín Coleff, 2020. "Can consumer complaints reduce product reliability? Should we worry?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(1), pages 74-96, January.
    5. Kim, Junyong & Wansink, Brian, 2012. "How Retailers’ Recommendation and Return Policies Alter Product Evaluations," Journal of Retailing, Elsevier, vol. 88(4), pages 528-541.
    6. Matsui, Kenji, 2010. "Returns policy, new model introduction, and consumer welfare," International Journal of Production Economics, Elsevier, vol. 124(2), pages 299-309, April.

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