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Partial Refunds or Money-Back Guarantees ?

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Authors
Chu, Wujin; Gerstner, Eitan; Hess, James D.
Issue Date
1998
Publisher
College of Business Administration (경영대학)
Citation
Seoul Journal of Business Vol4(1): 39~56(1998)
Keywords
full money-back; mail-order clothing; no questions asked
Abstract
A partial-refund policy is superior to a "full money-back policy when
a seller faces a significant amount of opportunistic return behavior-i.e.,
consumers order a product for short term usage only to return it for a
refund later. In a partial-refund policy, the seller charges a rent (the
nonrefundable portion of price) to those who return the product; this
discourages opportunistism, but also penalizes consumers who only
return because merchandise is unsatisfactory. The optimal partial
refund policy balances this tradeoff. Profit is higher under the partial
refund policy because of a lower number of returns and because a
higher price can be charged. Mail-order clothing and personal computer
industries demonstrate that catalogers typically offer only partial
refunds.
ISSN
1226-9816
Language
English
URI
http://hdl.handle.net/10371/1637
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College of Business Administration/Business School (경영대학/대학원)Dept. of Business Administration (경영학과)Seoul Journal of BusinessSeoul Journal of Business Volume 04, Number 1 (1998)
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