Price Markdowns to Induce Customers to Opt Out of Free Returns

Najafi, Sajjad; Duenyas, Izak

doi:10.2139/ssrn.3401300

SSRN Journal

2018

DOI: 10.2139/ssrn.3401300

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Price Markdowns to Induce Customers to Opt Out of Free Returns

Sajjad Najafi

Izak Duenyas

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Cited by 2 publications

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“…More recently, Najafi and Duenyas (2018) evaluate profit advantage of a new return policy, where consumers are offered an option to forgo full refund for returns in exchange for a price discount. Samatli et al (2018) examine return policies under consumer loss aversion.…”

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Signaling Quality with Return Insurance: Theory and Empirical Evidence

Zhang

Chen

2022

Management Science

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This paper examines an innovative return policy, return insurance, emerging on various shopping platforms such as Taobao.com and JD.com. Return insurance is underwritten by an insurer and can be purchased by either a retailer or a consumer. Under such insurance, the insurer partially compensates consumers for their hassle costs associated with product return. We analyze the informational roles of return insurance when product quality is the retailer’s private information, consumers infer quality from the retailer’s price and insurance adoption, and the insurer strategically chooses insurance premiums. We show that return insurance can be an effective signal of high quality. When consumers have little confidence about high quality and expect a significant gap between high and low qualities, a high-quality retailer can be differentiated from a low-quality retailer solely through its adoption of return insurance. We confirm, both analytically and empirically with a data set consisting of more than 10,000 sellers on JD.com, that return insurance is more likely adopted by higher-quality sellers under information asymmetry. Furthermore, we find that the presence of the third party (i.e., the insurer) leads to double marginalization in signaling, which strengthens a signal’s differentiating power and sometimes renders return insurance a preferred signal, in comparison with free return, whereby retailers directly compensate for consumers’ return hassles. As an effective and costly signal of quality, return insurance may also improve consumer surplus and reduce product returns. Its profit advantage to the insurer is most pronounced under significant quality uncertainty. This paper was accepted by Vishal Gaur, operations management.

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Signaling Quality with Return Insurance: Theory and Empirical Evidence

Zhang

Chen

2022

Management Science

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Managing Opportunistic Consumer Returns in Retail Operations

2018

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Price Markdowns to Induce Customers to Opt Out of Free Returns

Cited by 2 publications

References 43 publications

Signaling Quality with Return Insurance: Theory and Empirical Evidence

Signaling Quality with Return Insurance: Theory and Empirical Evidence

Managing Opportunistic Consumer Returns in Retail Operations

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