Return Policy as a Signaling Device in Horizontally Differentiated Products

Sawoong Kang
Additional contact information
Sawoong Kang: Handong Global University

Korean Economic Review, 2006, vol. 22, 409-436

Abstract: We consider a market for horizontally differentiated product in which the information about the location of the product is asymmetric between a monopolist and buyers. The vertical characteristic of the product (i.e., quality) is assumed to be common knowledge. Product differentiation is modeled a la Hotelling. Three types of sellers are assumed: A and C at two endpoints and B at the center. We analyze two signaling games, one with price being a signaling device and another with return policy. We show that return policy is a more efficient signaling device than price. When return policy can be adopted, (a) for most parameter values, there exists a separating equilibrium in which only seller B uses the return policy; (b) A pooling equilibrium in which all sellers use the return policy also exists; (c) Whenever return policy is adopted by some seller, it improves social welfare.

Keywords: Return policy; Signaling; Horizontal Differentiation (search for similar items in EconPapers)
JEL-codes: C72 D82 (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://keapaper.kea.ne.kr/RePEc/kea/keappr/KER-200612-22-2-09.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kea:keappr:ker-200612-22-2-09

Access Statistics for this article

Korean Economic Review is currently edited by Kyung Hwan Baik

More articles in Korean Economic Review from Korean Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by KEA ().