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Refunds and collusion in service industries

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  • Ringbom, Staffan
  • Shy, Oz

Abstract

This paper investigates industry-wide agreements on joint refund policies, and how they influence price competition. We compute the profit of fully-colluding, competing, and semicolluding service providers who offer refunds to those consumers who do not show up at the time of service. Our main findings are that both a monopoly serving all consumer types, and semicollusive service providers offer full refunds. In contrast, competing service providers offer only partial refunds. Finally, refund policies are investigated under moral hazard behavior.

Suggested Citation

  • Ringbom, Staffan & Shy, Oz, 2008. "Refunds and collusion in service industries," Journal of Economics and Business, Elsevier, vol. 60(6), pages 502-516.
    • Handle: RePEc:eee:jebusi:v:60:y:2008:i:6:p:502-516
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    References listed on IDEAS

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    1. Pascal Courty & Li Hao, 2000. "Sequential Screening," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 67(4), pages 697-717.
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    Cited by:

    1. Xiao Huang & Dan Zhang, 2020. "Service Product Design and Consumer Refund Policies," Marketing Science, INFORMS, vol. 39(2), pages 366-381, March.

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