Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278309 
Authors: 
Year of Publication: 
2022
Series/Report no.: 
ECONtribute Discussion Paper No. 214
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
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 nonrefundable price or encourages full learning and escalates price discrimination via free return. This result is robust to both good news and bad news framework.
Subjects: 
buyer learning
refund contract
information design
implementable mechanism
JEL: 
D82
D86
L15
Document Type: 
Working Paper

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