Regulating Cancellation Rights with Consumer Experimentation

Roman Inderst and Florian Hoffmann

No 13641, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Embedding consumer experimentation with a product or service into a market environment, we find that unregulated contracts induce too few returns or cancellations, as they do not internalize a pecuniary externality on other firms in the market. Forcing firms to let consumers learn longer by imposing a commonly observed statutory minimum cancellation or refund period is socially efficient only when firms appropriate much of the market surplus, while it backfires otherwise. Interestingly, cancellation rights are a poor predictor of competition, as in the unregulated outcome firms grant particularly generous rights when competition is neither too low nor too high.

Date: 2019-04
New Economics Papers: this item is included in nep-com, nep-cta, nep-mic and nep-reg
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Working Paper: Regulating Cancellation Rights With Consumer Experimentation (2018)
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