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Customer Return Policies for Experience Goods


  • Che, Yeon-Koo


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.

Suggested Citation

  • Che, Yeon-Koo, 1996. "Customer Return Policies for Experience Goods," Journal of Industrial Economics, Wiley Blackwell, vol. 44(1), pages 17-24, March.
  • Handle: RePEc:bla:jindec:v:44:y:1996:i:1:p:17-24

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    References listed on IDEAS

    1. Jacquemin, Alexis P & Berry, Charles H, 1979. "Entropy Measure of Diversification and Corporate Growth," Journal of Industrial Economics, Wiley Blackwell, vol. 27(4), pages 359-369, June.
    2. Kwoka, John E, Jr, 1979. "The Effect of Market Share Distribution on Industry Performance," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 101-109, February.
    3. Zellner, A., 1988. "Optimal Information-Processing And Bayes' Theorem," Papers m8803, Southern California - Department of Economics.
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