Nour Chalhoub (Arizona State University) will present “Returns when Product Inspection is a Choice” on May 5th, 2025, at 10:30 AM (CET) via Microsoft Teams.
Join the seminar: Meeting Link
Abstract:
This paper examines a seller’s profit maximizing return policy in a setting where consumers can inspect a product before purchasing and return it if it fails to meet their expectations. The model incorporates (1) heterogeneity in customers’ taste preferences, (2) uncertainty about product valuation prior to purchase, and (3) the costs associated with inspection. My result suggests that all these three factors interact in the optimal solution: the buyer’s option to costly inspect the product compels the seller to offer a strictly positive return that changes with the degree of heterogeneity among the buyers. On the seller side, I show that the seller has a strict preference over the buyers’ inspection behavior. Furthermore, I also show that there exists a nontrivial region of parameter values for which the outcomes of the optimal menu weakly improve the outcome of the seller and the buyers as the inspection cost increases