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What Motivates Returns Policies?

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  • Charles E. Hyde

Abstract

We examine two different models of manufacturer-retailer successive monopoly with retail demand uncertainty. In the first, both manufacturer and retailer are symmetrically uninformed about demand. Equilibrium exists if and only if the marginal costs of production and storage are sufficiently high, in which case the manufacturer offers a full-returns policy. Together with previous results, this shows that both the structure of the uncertainty and the timing of its resolution are critical factors affecting the scope for returns policies. In the second model, the manufacturer knows demand while the retailer does not. A full-returns policy is never offered in this case. Moreover, if any partial-returns policy is offered, it does not serve to signal the level of demand.

Suggested Citation

  • Charles E. Hyde, 2001. "What Motivates Returns Policies?," Department of Economics - Working Papers Series 821, The University of Melbourne.
    • Handle: RePEc:mlb:wpaper:821
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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-00-01/821.pdf
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    References listed on IDEAS

    as
    1. Butz, David A, 1997. "Vertical Price Controls with Uncertain Demand," Journal of Law and Economics, University of Chicago Press, vol. 40(2), pages 433-459, October.
    2. Kandel, Eugene, 1996. "The Right to Return," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 329-356, April.
    3. Marvel, Howard P & Peck, James, 1995. "Demand Uncertainty and Returns Policies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 691-714, August.
    4. V. Padmanabhan & I. P. L. Png, 1997. "Manufacturer's Return Policies and Retail Competition," Marketing Science, INFORMS, vol. 16(1), pages 81-94.
    5. Barry Alan Pasternack, 1985. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 4(2), pages 166-176.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    returns policies; demand uncertainty; pricing; successive monopoly;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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