Optimal Return Policy for Substitute Products in E-commerce Environment

Abstract

In this paper, we investigate the optimal return policy for the two kinds of substitute products with similar function but different quality levels and correspondingly different selling prices. We obtain the optimal refund for the two kinds of substitute products. In addition, we find that consumers will not purchase low-quality products when the refund amount of low-quality products is below the threshold value, and low-quality products will gradually be eliminated by the market. Therefore, the retailer needs to formulate optimal return policies for the two substitute products in order to occupy a larger market share and obtain higher profits.