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Robust Pricing with Refunds

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Listed:
  • Toomas Hinnosaar
  • Keiichi Kawai

Abstract

We characterize a selling mechanism that is robust to the seller’s uncertainty about the buyer’s signal structure. We show that by offering a generous refund policy, the seller can significantly reduce this type of uncertainty and regain market power. A simple mechanism that combines a generous refund policy and random non-refundable discounts achieves the best guaranteed-profit among all possible mechanisms.

Suggested Citation

  • Toomas Hinnosaar & Keiichi Kawai, 2018. "Robust Pricing with Refunds," Carlo Alberto Notebooks 563, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:563
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Qianjun Lyu, 2022. "Optimal Refund Mechanism," ECONtribute Discussion Papers Series 214, University of Bonn and University of Cologne, Germany.
    2. Lyu, Chen, 2023. "Information design for selling search goods and the effect of competition," Journal of Economic Theory, Elsevier, vol. 213(C).
    3. Rodivilov, Alexander, 2021. "A note on robust procurement contracts," Economics Letters, Elsevier, vol. 201(C).
    4. Bird, Davina & Garrod, Luke & Wilson, Chris M, 2024. "Consumer protection versus competition: the case of mandatory refunds," MPRA Paper 122125, University Library of Munich, Germany.
    5. Casner, Ben, 2020. "Seller curation in platforms," International Journal of Industrial Organization, Elsevier, vol. 72(C).
    6. Pham, Hien, "undated". "a reprendre_ WP annulé," TSE Working Papers 21-1263, Toulouse School of Economics (TSE).

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    More about this item

    Keywords

    optimal pricing; robustness; return policies; refunds; monopoly; informa tion design; mechanism design;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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