The impact of online reviews in the presence of customer returns

Miao Sun, Jing Chen, Ye Tian and Yufei Yan

International Journal of Production Economics, 2021, vol. 232, issue C

Abstract: We develop a duopoly model to examine how online reviews influence the decisions of two competing online sellers who sell products of differentiated quality under different returns policies. We derive the competing sellers' optimal decisions on price and returns policy with and without online reviews, and we find that online reviews have greater impact on the high-quality seller than on the low-quality seller. If the salvage value of the product is relatively low, the seller has less opportunity to benefit from online reviews when it offers an MBG, as compared to a no-refund policy. The impact of online reviews on the competition between the two sellers has a “symmetric effect area,” where reviews may either weaken or intensify the price competition between the two sellers when they both offer a no-refund policy, but always intensify the competition if they both offer an MBG. We have identified the conditions under which online reviews lead to a win-win, or benefit one seller, or present a prisoner's dilemma for the two online sellers. We also show that MBGs at both sellers help mitigate the prisoner's dilemma if the net salvage value at both sellers is sufficiently high.

Keywords: Online reviews; Customer returns; Competition; Game theory; Returns policy (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:232:y:2021:i:c:s092552732030284x

DOI: 10.1016/j.ijpe.2020.107929

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