Information Acquisition and Refunds for Returns

  title={Information Acquisition and Refunds for Returns},
  author={Steven A. Matthews and Nicola Persico},
  journal={Corporate Finance: Valuation},
A product exhibits personal fit uncertainty when its consumers have idiosyncratic and uncertain values for it. Often a consumer can learn her long-run value quickly by obtaining the good for a trial period. Money back guarantees of satisfaction are commonly used to lower the cost to consumers of learning their values this way. Increasingly, however, consumers can instead learn about their values before they purchase by, e.g., reading product reviews or consulting experts. We study the effect on… 
Price Markdowns to Induce Customers to Opt Out of Free Returns
We study a newly emerging product return policy in the retail e-commerce industry. Alongside the conventional free return option, consumers (who face valuation uncertainty pre-purchase) are offered
Optimal Restocking Fees and Information Provision in an Integrated Demand-Supply Model of Product Returns
An analytical model is developed that describes how consumer purchase and return decisions are affected by a seller's pricing and restocking fee policy and identifies conditions under which it is (or is not) optimal to provide product fit information to consumers.
Immediate sale or stock-up: value of rent-to-own contracts for experience goods
Many high-value experience goods, such as pianos and Chinese zithers, are usually characterized by uncertain future values. As such, a portion of customers (called ‘consumers’) may hesitate to buy
Selling Service Plans to Differentially Informed Customers
We characterize a monopolist's optimal offer of service plans when only informed customers know already at the contracting stage whether their demand is high or low, while uninformed customers may
Sales Talk, Cancellation Terms and the Role of Consumer Protection
This paper analyses contract cancellation and product return policies in markets in which sellers advise customers about the suitability of their offering. When customers are fully rational, it is
Informing consumers about their own preferences
Incentives through Consumer Learning
Consumer inexperience can–in the form of uncertainty about the match value– play an important role for solving a moral hazard problem between a …rm and its customers. Inexperienced consumers learn
Competitive Returns Management: Why Higher Salvage Values are Not Necessarily Better
Online e-tailers face return rates of up to 50%, sharply reducing profits. They pursue two classes of mitigation-actions: First, proactive returns management controls the number of returns by
Sales Talk, Return Policies, and the Role of Consumer Protection
This paper analyzes the role of product return and contract cancellation policies in markets in which sellers advise buyers about the suitability of the products sold. By granting buyers the right to
Regulating Cancellation Rights with Consumer Experimentation
Embedding consumer experimentation with a product or service into a market environment, we find that unregulated contracts induce too little returns or cancellations, as they do not internalize a


Information Acquisition and the Excess Refund Puzzle
A buyer can learn her value for a returnable experience good by trying it out, with the option of returning the good for whatever refund the seller oers. Sellers tend to oer a "no questions
Sequential Screening
We present a model of price discrimination where a monopolist faces a consumer who is privately informed about the distribution of his valuation for an indivisible unit of good but has yet to learn
Manufacturer's Return Policies and Retail Competition
Manufacturers' returns policies are a common feature in the distribution of many products. The obvious rationale for returns policies is insurance. Practitioners, not surprisingly, have a different
Signaling Quality with a Money-Back Guarantee: The Role of Transaction Costs
Direct marketing is witnessing explosive growth. As consumers increasingly purchase products from their homes, their ability to judge the quality of products they buy is significantly reduced. In
Demand Uncertainty and Returns Policies
Manufacturers facing uncertain demand may induce distributors to carry ample stocks of their products by agreeing to accept returns of unsold goods for credit. The authors model the manufacturer's
Measurement Cost and the Organization of Markets
  • Y. Barzel
  • Economics
    The Journal of Law and Economics
  • 1982
PEOPLE will exchange only if they perceive what they get to be more valuable than what they give. To form such perceptions, the attributes of the traded items have to be measured. Some measurements
Return Policies and the Optimal Level of "Hassle"
Customer Return Policies for Experience Goods
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
Information Sales and Strategic Trading
We study information sales in financial markets with strategic risk-averse traders. The optimal selling mechanism is one of the following two: (i) sell to as many agents as possible very imprecise
Price and Money‐Back Guarantees as Signals of Product Quality
Why is it so common for the seller to provide guarantees that say "Satisfaction guaranteed or your money back" along with the sale of a product? Newly introduced goods and mail-ordered products are