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Partial Refunds or Money-Back Guarantees ?

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Authors

Chu, Wujin; Gerstner, Eitan; Hess, James D.

Issue Date
1998-06
Publisher
College of Business Administration (경영대학)
Citation
Seoul Journal of Business, Vol.4 No.1, pp. 39-56
Keywords
full money-backmail-order clothingno 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
https://hdl.handle.net/10371/1637
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Appears in Collections:
College of Business Administration/Business School (경영대학/대학원)Dept. of Business Administration (경영학과)Seoul Journal of Business (SJB)Seoul Journal of Business Volume 04, Number 1 (1998)
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