Managing Consumer Returns in a Competitive Environment

Jeffrey D. Shulman (), Anne T. Coughlan () and R. Canan Savaskan ()
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Jeffrey D. Shulman: Michael G. Foster School of Business, University of Washington, Seattle, Washington 98195
Anne T. Coughlan: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
R. Canan Savaskan: Cox School of Business, Southern Methodist University, Dallas, Texas 75275

Management Science, 2011, vol. 57, issue 2, 347-362

Abstract: This paper investigates the pricing and restocking fee decisions of two competing firms selling horizontally differentiated products. We model a duopoly facing consumers who have heterogeneous tastes for the products and who must experience a product before knowing how well it matches with their preferences. The analysis yields several key insights. Restocking fees not only can be sustained in a competitive environment, but also are more severe when consumers are less informed about product fit and when consumers place a greater importance on how well products' attributes fit with their preferences. We compare the competitive equilibrium prices to a scenario in which consumers are certain about their preferences and find conditions defining when consumer uncertainty results in higher equilibrium prices. Comparison to a monopoly setting yields a surprising result: Equilibrium restocking fees in a competitive environment can be higher than those charged by a monopolist. This paper was accepted by Jagmohan S. Raju, marketing.

Keywords: marketing; channels of distribution; competitive strategy; pricing (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (90)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:57:y:2011:i:2:p:347-362

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