The Right to Return
This article studies the allocation of responsibility for unsold inventory, provision for which is made in practically every distribution contract. The two extreme cases are the consignment contract, which allocates all the burden to the manufacturer, and the no-return contract, in which retailers purchase the merchandise outright and assume responsibility for unsold inventory. Contract choices are shown to vary across countries, industries, products and types of transactions. The article identifies six main factors affecting this choice: optimal inventory policy in a stochastic retail demand environment, relative advantage in disposing of the unsold inventory, optimal risk allocation, incentives to invest in promotions and provide services to increase consumer demand, information asymmetry, and costs associated with the consignment contract per se. Several testable implications are presented and the choice of contracts in the publishing industry is shown to be consistent with the predictions of the model. Copyright 1996 by the University of Chicago.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Russell Cooper & T.W. Ross, 1984.
"Product Warranties and Double Moral Hazard,"
Cowles Foundation Discussion Papers
716, Cowles Foundation for Research in Economics, Yale University.
- Barry Alan Pasternack, 1985. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 4(2), pages 166-176.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, March.
- James A. Kahn, 1992. "Why is Production More Volatile than Sales? Theory and Evidence on the Stockout-Avoidance Motive for Inventory-Holding," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 481-510.
- G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
When requesting a correction, please mention this item's handle: RePEc:ucp:jlawec:v:39:y:1996:i:1:p:329-56. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If references are entirely missing, you can add them using this form.