10 de abril: Keke Sun, UC

Paper: Why do intermediaries impose the free return policy.

Expositor: Keke Sun, UC
Fecha: Miércoles 10 de abril de 2019
Hora: 13:00 horas a 14:00 horas.
Lugar: Avda. Santa Clara N° 797,
Campus Ciudad Empresarial,
Sala C-302 – Edificio Cubo

Abstract

This paper models product returns as a channel for consumer experimentation and studies return policies from the perspective of a third-party intermediary. We analyze a monopoly intermediary’s incentive to impose the free return policy (FRP) on sellers when consumers face a priori uncertainty about the product’s fit with their preferences. The FRP resolves the matching uncertainty by offering consumers free «product trials». The sellers become monopolies to the consumers that prefer the product over the rival’s and avoid price competition. However, in the presence of the cost associated with returns, sellers have the incentive to free ride on the rival’s FRP. By imposing the FRP on sellers, the intermediary can increase its profit when the sellers have high costs to handle returns. When two ex-ante symmetric intermediaries compete with each other, it would be socially optimal for both intermediaries to impose the FRP if the cost for handling returns is small.