Abstract
The effect of return policies on market outcomes is studied in a model where consumers differ in their valuations of time. Product reliability is identified with defect rates. Producers first choose reliability levels and then compete in prices. For given defect rates, allowing returns makes products closer substitutes, enhancing competition and reducing prices. Being closer substitutes makes higher reliability less worthwhile, which reduces reliability. While the decrease in reliability reduces consumer welfare, the decrease in prices raises it. The latter dominates, so that aggregate consumer welfare increases with return policy.
| Original language | English |
|---|---|
| Pages (from-to) | 296-316 |
| Number of pages | 21 |
| Journal | Canadian Journal of Economics |
| Volume | 40 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 2007 Feb |
| Externally published | Yes |
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ASJC Scopus subject areas
- Economics and Econometrics
Cite this
Return policies, market outcomes, and consumer welfare. / Chesnokova, Tatyana.
In: Canadian Journal of Economics, Vol. 40, No. 1, 02.2007, p. 296-316.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Return policies, market outcomes, and consumer welfare
AU - Chesnokova, Tatyana
PY - 2007/2
Y1 - 2007/2
N2 - The effect of return policies on market outcomes is studied in a model where consumers differ in their valuations of time. Product reliability is identified with defect rates. Producers first choose reliability levels and then compete in prices. For given defect rates, allowing returns makes products closer substitutes, enhancing competition and reducing prices. Being closer substitutes makes higher reliability less worthwhile, which reduces reliability. While the decrease in reliability reduces consumer welfare, the decrease in prices raises it. The latter dominates, so that aggregate consumer welfare increases with return policy.
AB - The effect of return policies on market outcomes is studied in a model where consumers differ in their valuations of time. Product reliability is identified with defect rates. Producers first choose reliability levels and then compete in prices. For given defect rates, allowing returns makes products closer substitutes, enhancing competition and reducing prices. Being closer substitutes makes higher reliability less worthwhile, which reduces reliability. While the decrease in reliability reduces consumer welfare, the decrease in prices raises it. The latter dominates, so that aggregate consumer welfare increases with return policy.
UR - http://www.scopus.com/inward/record.url?scp=33846687769&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=33846687769&partnerID=8YFLogxK
U2 - 10.1111/j.1365-2966.2007.00409.x
DO - 10.1111/j.1365-2966.2007.00409.x
M3 - Article
AN - SCOPUS:33846687769
VL - 40
SP - 296
EP - 316
JO - Canadian Journal of Economics
JF - Canadian Journal of Economics
SN - 0008-4085
IS - 1
ER -