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Refunds and Collusion

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Author Info

  • Oz Shy

    ()
    (WZB - Social Science Research Center Berlin)

  • Staffan Ringbom

    ()
    (Department of Economics, Swedish School of Economics)

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Abstract

We characterize the conditions under which industry-wide agreements on refund policies weaken price competition. We identify the conditions under which joint industry proffit increases with the amount of refunds promised to those consumers who cancel a reservation or return a product. We compare it to similar industry configurations when firms set up shipping and handling charges instead of refunds. Finally, we investigate refund policies under moral hazard.

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File URL: http://economia.unipd.it/sites/decon.unipd.it/files/20050001.pdf
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Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0001.

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Length: 37 pages
Date of creation: May 2005
Date of revision:
Handle: RePEc:pad:wpaper:0001

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Related research

Keywords: Refunds; Partial refunds; Collusion on refunds; Shipping & handling charges; Moral hazard;

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References

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  1. Miravete, Eugenio J, 1996. "Screening Consumers through Alternative Pricing Mechanisms," Journal of Regulatory Economics, Springer, vol. 9(2), pages 111-32, March.
  2. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
  3. Courty, Pascal, 2003. "Ticket Pricing under Demand Uncertainty," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 627-52, October.
  4. repec:ebl:ecbull:v:13:y:2004:i:1:p:1-7 is not listed on IDEAS
  5. Courty, Pascal & Li, Hao, 2000. "Sequential Screening," Review of Economic Studies, Wiley Blackwell, vol. 67(4), pages 697-717, October.
  6. Gale, Ian L & Holmes, Thomas J, 1993. "Advance-Purchase Discounts and Monopoly Allocation of Capacity," American Economic Review, American Economic Association, vol. 83(1), pages 135-46, March.
  7. repec:att:wimass:9214 is not listed on IDEAS
  8. James D. Dana & Jr., 1998. "Advance-Purchase Discounts and Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 106(2), pages 395-422, April.
  9. Gale, Ian L. & Holmes, Thomas J., 1992. "The efficiency of advance-purchase discounts in the presence of aggregate demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 413-437, September.
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