Journal article
The Impact of Consumer Loss Aversion on Returns Policies and Supply Chain Coordination
International journal of operations research and information systems, v 9(4)
01 Oct 2018
Abstract
Product return is a common after-sale service. Existing literature has assumed loss neutral consumers, while in practice consumers are often more sensitive to utility losses than gains, i.e., customers are often loss averse. In this paper, we study the impact of such loss aversion on the retailer's optimal pricing and returns policies. We analyze three scenarios where the seller offers no refund, full refund and partial refund for the returned products. Under each scenario, the seller determines the optimal price, quantity, and refund amount (under partial refund case) in order to maximize the expected profit. Our results demonstrate that consumer loss aversion leads a no-refund retailer to charge lower price and order smaller quantity, has no impact on a full-refund retailer, and results in a more lenient returns policy for a partial-refund retailer. We also find contracts that coordinate supply chains selling to loss averse consumers. Therefore, this article sheds some lights on how the management of returns policies should be adapted when consumers are loss averse.
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Details
- Title
- The Impact of Consumer Loss Aversion on Returns Policies and Supply Chain Coordination
- Creators
- Gulay Samatli-Pac - Drexel UniversityWenjing Shen - Drexel UniversityXinxin Hu - University of Houston - Downtown
- Publication Details
- International journal of operations research and information systems, v 9(4)
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Decision Sciences (and Management Information Systems)
- Other Identifier
- 991020836358704721