WHAT MOTIVATES RETURNS POLICIES?

Charles E. Hyde

No 821, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: We examine two different models of manufacturer-retailer successive monopoly with retail demand uncertainty. In the first, both manufacturer and retailer are symmetrically uninformed about demand. Equilibrium exists if and only if the marginal costs of production and storage are sufficiently high, in which case the manufacturer offers a full-returns policy. Together with previous results, this shows that both the structure of the uncertainty and the timing of its resolution are critical factors affecting the scope for returns policies. In the second model, the manufacturer knows demand while the retailer does not. A full-returns policy is never offered in this case. Moreover, if any partial-returns policy is offered, it does not serve to signal the level of demand.

Keywords: returns policies; demand uncertainty; pricing; successive monopoly (search for similar items in EconPapers)
JEL-codes: L12 L14 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2001
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