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Customer Return Policies for Experience Goods

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Author Info

  • Che, Y.K.

Abstract

This paper studies the economic rationale for customer return policies by focusing on the 'experience goods' aspect of many products. Return policies allow consumers to defer their purchasing decisions until after they gain some experience with goods. In so doing, they insure consumers against ex post loss, which allows a monopoly seller to charge more than otherwise. It is shown that the seller adopts the return policy when consumers are highly risk averse or retail costs are high. Consumers are strictly better-off under the return policy but there is too little adoption of the policy in equilibrium. Copyright 1996 by Blackwell Publishing Ltd.

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Bibliographic Info

Paper provided by Wisconsin Madison - Social Systems in its series Working papers with number 9509.

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Length: 13 pages
Date of creation: 1995
Date of revision:
Handle: RePEc:att:wimass:9509

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Postal: UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A.

Related research

Keywords: CONSUMPTION; DECISION MAKING;

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Cited by:
  1. Hao Li & Xianwen Shi, 2013. "Discriminatory Information Disclosure," Working Papers tecipa-497, University of Toronto, Department of Economics.
  2. Chen, Jing & Grewal, Ravneet, 2013. "Competing in a supply chain via full-refund and no-refund customer returns policies," International Journal of Production Economics, Elsevier, vol. 146(1), pages 246-258.
  3. Zhang, Jun, 2013. "Revenue maximizing with return policy when buyers have uncertain valuations," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 452-461.
  4. Ruiz-Benitez, Rocio & Muriel, Ana, 2014. "Consumer returns in a decentralized supply chain," International Journal of Production Economics, Elsevier, vol. 147(PC), pages 573-592.
  5. Andreoni,J., 2005. "Trust, reciprocity, and contract enforcement : experiments on satisfaction guaranteed," Working papers 7, Wisconsin Madison - Social Systems.
  6. Roman Inderst & Marco Ottaviani, 2012. "Sales Talk, Cancellation Terms, and the Role of Consumer Protection," Working Papers 465, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. David P. Myatt & Justin P. Johnson, 2004. "On the Simple Economics of Advertising, Marketing, and Product Design," Economics Series Working Papers 185, University of Oxford, Department of Economics.
  8. Chen, Yongmin & Hua, Xinyu, 2010. "Ex ante Investment, Ex post Remedy, and Product Liability," MPRA Paper 22031, University Library of Munich, Germany.
  9. Alessandro Acquisti, 2014. "Inducing Customers to Try New Goods," Review of Industrial Organization, Springer, vol. 44(2), pages 131-146, March.
  10. Bouckaert, J.M.C. & Degryse, H.A., 1998. "Price competition between an expert and a non-expert," Discussion Paper 1998-49, Tilburg University, Center for Economic Research.
  11. Li, Yongjian & Xu, Lei & Li, Dahui, 2013. "Examining relationships between the return policy, product quality, and pricing strategy in online direct selling," International Journal of Production Economics, Elsevier, vol. 144(2), pages 451-460.
  12. Amir Heiman, 2010. "The economics of demonstrations: The effect of competition on demonstration and pricing strategies," Marketing Letters, Springer, vol. 21(4), pages 351-363, December.
  13. Huang, Ximin & Gu, Jia-Wen & Ching, Wai-Ki & Siu, Tak-Kuen, 2014. "Impact of secondary market on consumer return policies and supply chain coordination," Omega, Elsevier, vol. 45(C), pages 57-70.
  14. Steven A. Matthews & Nicola Persico, 2007. "Information Acquisition and Refunds for Returns," Carlo Alberto Notebooks 54, Collegio Carlo Alberto.
  15. Xiao, Tiaojun & Shi, Kuiran & Yang, Danqin, 2010. "Coordination of a supply chain with consumer return under demand uncertainty," International Journal of Production Economics, Elsevier, vol. 124(1), pages 171-180, March.
  16. Steven A. Matthews & Nicola Persico, 2005. "Information Acquisition and the Excess Refund Puzzle," PIER Working Paper Archive 05-015, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  17. Alexandre Gaudeul, 2004. "Shareware competition: Selling an experience," Game Theory and Information 0409008, EconWPA.
  18. Inderst, Roman & Tirosh, Gilad, 2011. "Refunds as a Metering Device," MPRA Paper 53846, University Library of Munich, Germany.

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