Robust pricing with refunds

Toomas Hinnosaar, Keiichi Kawai

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

Before purchase, a buyer of an experience good learns about the product's fit using various information sources, including some of which the seller may be unaware of. The buyer, however, can conclusively learn the fit only after purchasing and trying out the product. We show that the seller can use a simple mechanism to take best advantage of the buyer's post-purchase learning to maximize his guaranteed-profit. We show that this mechanism combines a generous refund, which performs well when the buyer is relatively informed, with non-refundable random discounts, which work well when the buyer is relatively uninformed.

Original languageEnglish
Pages (from-to)1014-1036
Number of pages23
JournalRAND Journal of Economics
Volume51
Issue number4
DOIs
Publication statusPublished - 2020 Dec 1
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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