Managing consumer returns in a competitive environment

Jeffrey D. Shulman, Anne T. Coughlan, R. Canan Savaskan

Research output: Contribution to journalArticlepeer-review

94 Scopus citations

Abstract

This paper investigates the pricing and restocking fee decisions of two competing firms selling horizontally differentiated products. We model a duopoly facing consumers who have heterogeneous tastes for the products and who must experience a product before knowing how well it matches with their preferences. The analysis yields several key insights. Restocking fees not only can be sustained in a competitive environment, but also are more severe when consumers are less informed about product fit and when consumers place a greater importance on how well products' attributes fit with their preferences. We compare the competitive equilibrium prices to a scenario in which consumers are certain about their preferences and find conditions defining when consumer uncertainty results in higher equilibrium prices. Comparison to a monopoly setting yields a surprising result: Equilibrium restocking fees in a competitive environment can be higher than those charged by a monopolist.

Original languageEnglish (US)
Pages (from-to)347-362
Number of pages16
JournalManagement Science
Volume57
Issue number2
DOIs
StatePublished - Feb 1 2011

Keywords

  • Channels of distribution
  • Competitive strategy
  • Marketing
  • Pricing

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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