Strategic Offerings of Return Freight Insurance by Insurers in Monopolistic and Duopolistic Markets
Liang Huang,
Jinyi Qin and
Yan Chen ()
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Liang Huang: Department of Decision Sciences, Macau University of Science and Technology, Macau 999078, China
Jinyi Qin: Department of Decision Sciences, Macau University of Science and Technology, Macau 999078, China
Yan Chen: Department of Decision Sciences, Macau University of Science and Technology, Macau 999078, China
Mathematics, 2025, vol. 13, issue 11, 1-20
Abstract:
With the rapid development of e-commerce, Return Freight Insurance (RFI) has emerged as a vital tool for retailers and customers to mitigate the financial burden posed by high return rates in online shopping. This paper investigates the strategic decision-making of RFI providers (insurers), examining whether they should offer fixed-compensation insurance at a lower price or full-coverage insurance at a higher price under varying market conditions. Specifically, we develop game-theoretic models to analyze insurers’ strategic decisions in both monopoly and duopoly markets, accounting for customer return cost and product mismatch probability heterogeneity. Our findings reveal that in a monopoly market, when customer return costs are relatively low and concentrated, insurers benefit from offering fixed compensation insurance (i.e., pre-set reimbursement amounts) at a lower price to attract a broader customer base. By contrast, when return costs are more dispersed and higher, full-coverage insurance (which reimburses actual freight costs) becomes more profitable, as the insurer can utilize its flexible pricing power to attract higher-paying customer segments. In a duopoly market, customer return cost heterogeneity significantly influences market equilibrium. When heterogeneity is high, full-coverage insurance dominates, as insurers can leverage precise market segmentation to justify higher premiums. Conversely, when return costs are more uniform, fixed compensation insurance is preferred for its affordability, appealing to a wider range of customers.
Keywords: internet insurance; customer returns; return freight insurance; competitive insurers (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2025
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