Group for Research in Decision Analysis

Pricing in the presence of customer returns

Jenny Chen Rowe School of Business, Dalhousie University, Canada

Retailers offer customer returns policies as their post-sales service and use both pricing and service strategies to respond to competition. The study investigates the impact of the personalized pricing strategy (PPS) and Money Back Guarantee (MBG) returns policy for a duopoly. It shows that both PPS and MBG are dominant strategies, but their impact on retailers’ prices and profits are different; while PPS intensifies price competition and may lead to a prisoner’s dilemma as both retailers may lose profits, MBG mitigates price competition and may result in a Pareto improvement in both retailers’ profits.

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