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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. Miravete, Eugenio J, 1996. "Screening Consumers through Alternative Pricing Mechanisms," Journal of Regulatory Economics, Springer, vol. 9(2), pages 111-132, March.
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    4. Steven A. Matthews & Nicola Persico, 2005. "Information Acquisition and the Excess Refund Puzzle," PIER Working Paper Archive 05-015, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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    6. Gale, Ian L & Holmes, Thomas J, 1993. "Advance-Purchase Discounts and Monopoly Allocation of Capacity," American Economic Review, American Economic Association, vol. 83(1), pages 135-146, March.
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    8. Staffan Ringbom & Oz Shy, 2004. "Advance booking, cancellations, and partial refunds," Economics Bulletin, AccessEcon, vol. 13(1), pages 1-7.
    9. repec:ebl:ecbull:v:13:y:2004:i:1:p:1-7 is not listed on IDEAS
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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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