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A search model of costly product returns

AuthorsPetrikaité, Vaiva
KeywordsReturn cost
Horizontal differentiation
Issue DateMay-2018
CitationInternational Journal of Industrial Organization 58: 236-251 (2018)
AbstractThis paper analyses a market in which consumers buy horizontally differentiated products without knowing their exact valuations. By paying return costs, the consumers may return less-preferred items and obtain refunds. The consumers shop sequentially and their shopping strategy is similar to the search strategy of a consumer in a sequential costly search model. Thus, the pricing strategies of firms are identical to those in a price-directed sequential search model. Price competition is more intense, and the symmetric equilibrium price is lower when returns are costlier. As a result, consumer surplus is increasing in the return cost.
Publisher version (URL)https://doi.org/10.1016/j.ijindorg.2017.06.003
Appears in Collections:(IAE) Artículos
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