A search model of costly product returns

Vaiva Petrikaite

International Journal of Industrial Organization, 2018, vol. 58, issue C, 236-251

Abstract: This paper analyses a market in which consumers buy horizontally differentiated products without knowing their exact valuations. By paying return costs, the consumers may return less-preferred items and obtain refunds. The consumers shop sequentially and their shopping strategy is similar to the search strategy of a consumer in a sequential costly search model. Thus, the pricing strategies of firms are identical to those in a price-directed sequential search model. Price competition is more intense, and the symmetric equilibrium price is lower when returns are costlier. As a result, consumer surplus is increasing in the return cost.

Keywords: Return cost; Horizontal differentiation; Duopoly (search for similar items in EconPapers)
JEL-codes: D43 D83 L13 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:58:y:2018:i:c:p:236-251

DOI: 10.1016/j.ijindorg.2017.06.003

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