Robust Pricing with Refunds

Toomas Hinnosaar and Keiichi Kawai

No 14615, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Before purchase, a buyer of an experience good learns about the product's fit using various information sources, including some of which the seller may be unaware of. The buyer, however, can conclusively learn the fit only after purchasing and trying out the product. We show that the seller can use a simple mechanism to best take advantage of the buyer's post-purchase learning to maximize his guaranteed-profit. We show that this mechanism combines a generous refund, which performs well when the buyer is relatively informed, with non-refundable random discounts, which work well when the buyer is relatively uninformed.

Keywords: Optimal pricing; Robustness; Return policies; Refunds; Monopoly; Information design; Mechanism design (search for similar items in EconPapers)
JEL-codes: C79 D42 D82 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-com and nep-des
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Robust pricing with refunds (2020)
Working Paper: Robust Pricing with Refunds (2020)
Working Paper: Robust Pricing with Refunds (2018)
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