Template-Type: ReDIF-Paper 1.0
Author-Name:  Qianjun Lyu
Author-Name-First: Qianjun
Author-Name-Last: Lyu
Author-Email: 
Author-Workplace-Name: Institute for Microeconomics, University of Bonn

Title:   Optimal Refund Mechanism
Abstract: This paper studies the optimal refund mechanism when an uninformed buyer can privately acquire information about his valuation over time. In principle, a refund mechanism can specify the odds that the seller requires the product returned while issuing a (partial) refund, which we call stochastic return. It guarantees the seller a strictly positive minimum revenue and facilitates intermediate buyer learning. In the benchmark model, stochastic return is sub-optimal. The optimal refund mechanism takes simple forms: the seller either deters learning via a well-designed non-refundable price or encourages full learning and escalates price discrimination via free return. This result is robust to both good news and bad news framework. 
Length: 52 pages
Classification-JEL: D82, D86, L15
Keywords: buyer learning, refund contract, information design, implementable mechanism

Creation-Date:  2022-12
File-URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_214_2022.pdf
File-Format: Application/pdf
File-Function: First version, 2022
Number: 214
Handle: RePEc:ajk:ajkdps:214