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Refunds and collusion in service industries

  • Ringbom, Staffan
  • Shy, Oz
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This paper investigates industry-wide agreements on joint refund policies, and how they influence price competition. We compute the profit of fully-colluding, competing, and semicolluding service providers who offer refunds to those consumers who do not show up at the time of service. Our main findings are that both a monopoly serving all consumer types, and semicollusive service providers offer full refunds. In contrast, competing service providers offer only partial refunds. Finally, refund policies are investigated under moral hazard behavior.

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File URL: http://www.sciencedirect.com/science/article/B6V7T-4R53WBD-1/2/28301b0505628b516568a2a632447843
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Article provided by Elsevier in its journal Journal of Economics and Business.

Volume (Year): 60 (2008)
Issue (Month): 6 ()
Pages: 502-516

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Handle: RePEc:eee:jebusi:v:60:y:2008:i:6:p:502-516
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconbus

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  1. Eugenio J. Miravete, 1995. "Screening Consumers through Alternative Pricing Mechanisms," Discussion Papers 1145, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Pascal Courty & Li Hao, 1997. "Sequential screening," Economics Working Papers 224, Department of Economics and Business, Universitat Pompeu Fabra.
  3. 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.
  4. 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.
  5. repec:att:wimass:9005 is not listed on IDEAS
  6. Spence, A Michael, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 561-72, October.
  7. repec:ebl:ecbull:v:13:y:2004:i:1:p:1-7 is not listed on IDEAS
  8. 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.
  9. 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.
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