Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

2009

Publication Source

Manufacturing & Service Operations Management

Volume

11

Issue

4

Start Page

595

Last Page

612

DOI

10.1287/msom.1080.0240

Abstract

This paper develops a model of consumer returns policies. In our model, consumers face valuation uncertainty and realize their valuations only after purchase. There is also aggregate demand uncertainty, captured using the conventional newsvendor model. In this environment, consumers decide whether to purchase and then whether to return the product, whereas the seller sets the price, quantity, and refund amount.

Using our model, we study the impact of full returns policies (e.g., using 100% money-back guarantees) and partial returns policies (e.g., when restocking fees are charged) on supply chain performance. Next, we demonstrate that consumer returns policies may distort incentives under common supply contracts (such as manufacturer buy-backs), and we propose strategies to coordinate the supply chain in the presence of consumer returns. Finally, we explore several extensions and demonstrate the robustness of our findings.

Comments

At the time of publication, author Xuanming Su was affiliated with the University of California. Currently (July 2016), he is a faculty member in the Operation, Information and Decisions Department of the Wharton School at the University of Pennsylvania.

Keywords

consumer returns, supply chains, valuation uncertainty, newsvendor model, supply contracts

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Date Posted: 27 November 2017

This document has been peer reviewed.