Choice of Customer Return Policies in Opaque Selling

Abstract

No-refund policy is strictly enforced in industries such as airlines and hotels, which offers opaque sales firstly. In this paper, however, we study whether opaque sellers can apply full return policy as an effective tool to win competitive advantage in retailing markets. We consider the channel structure which has an opaque seller, a regular seller and a manufacturer as members. For this structure, we construct the Stackelberg game model, provide the unique equilibrium, and bring up the conditions of offering full return policy for the opaque seller. Furthermore, we investigate how the market differentiates in the equilibrium results. We theoretically analyze the impact of customer return policy on profits, demand and pricing determination of supply chain members. We also provide numerical examples to illuminate the influence of net salvage value on profits, demand and pricing determination of the channel members. Our study provides theoretical support for opaque sellers in customer return policy and pricing decision.