Is more informative information better? Considering consumer returns under product fit uncertainty

Although numerous studies have confirmed the positive effect of online reviews on product sales, it is still uncertain how they impact the number of returns and demand, particularly when consumers face product fit uncertainty. To further examine the impact of an online seller's information provision policy, we take three steps. Firstly, we establish the seller's profit function by analyzing consumer purchase decisions when product fit uncertainty is partially reduced by review information and return decisions when true valuation is revealed. Using this profit function, we derive the optimal price under five different scenarios. Secondly, we examine how more informative information influences the optimal price and profit in each scenario, and the number of returns and demand. Finally, we derive the seller's information provision policy for the product with varying degrees of dispersion. We find that: (1) When returns occur under a partially covered market, more informative information decreases the optimal price while improving the optimal profit. However, it only reduces returns when the degree of informativeness surpasses a certain threshold. (2) When no returns occur under a partially covered market, more informative information increases the optimal price and reduces the demand. It only improves the optimal profit when both the degree of informativeness and dispersion value are higher than a certain threshold. (3) For products with very low or high dispersion, a no or full disclosure policy respectively is most profitable. However, for products with lower or medium dispersion, a mediocre disclosure policy is optimal.