Refunds and returns in a vertically differentiated industry

Roman Inderst and Gilad Tirosh

International Journal of Industrial Organization, 2015, vol. 38, issue C, 44-51

Abstract: Firms frequently offer refunds, both when physical products are returned and when service contracts are terminated prematurely. We show how refunds act as a “metering device” when consumers learn about their personal valuation while experimenting with the product or service. Our theory predicts that low-quality firms offer inefficiently strict terms for refunds, while high-quality firms offer inefficiently generous terms. This may help to explain the observed variety in contractual terms.

Keywords: Refunds; Cancelation terms; Vertical differentiation (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:38:y:2015:i:c:p:44-51

DOI: 10.1016/j.ijindorg.2014.12.002

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