Consumer protection versus competition: the case of mandatory refunds

Davina Bird, Luke Garrod and Chris M Wilson

MPRA Paper from University Library of Munich, Germany

Abstract: Mandatory refund policies have received a lot of attention from both policymakers and academics. Despite this, little is known about how sellers strategically respond to the policy and the resulting effects on competition. To address this, we analyze mandatory refund policies in a framework that flexibly accommodates the full competition spectrum. We show that the policy can benefit consumers in uncompetitive markets under certain conditions, despite reducing social welfare and profits. Nevertheless, we also demonstrate how the policy can be detrimental to consumers, even in very uncompetitive markets. Intuitively, while the policy always protects consumers from some bad outcomes post-purchase, sellers respond by increasing their prices and so consumers have less chance of obtaining a good deal pre-purchase.

Keywords: Refunds; Product Returns; Cooling-Off Periods; Returns Policy; Cancellation Rights (search for similar items in EconPapers)
JEL-codes: D18 D21 M37 (search for similar items in EconPapers)
Date: 2024-09-13
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:122125

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