Working Paper: CEPR ID: DP17958
Authors: Maarten Janssen; Cole Williams
Abstract: E-commerce has led to a surge in products being returned after purchase. We analyze product returns as resulting from a trade-off between the social waste of returns and the search efficiency gains of being able to inspect a product’s value after purchase. We find that whenever returns are efficient, the market generates too few returns as the parties involved in the transaction do not internalize the welfare benefit of consumers continuing their search, generating profits for other firms. We also show that, despite their consumer friendly appearance and the private cost of returns, firms may benefit and capture the gains from less costly search.
Keywords: Product Returns; Consumer Search; Search Efficiencies; Product Matches
JEL Codes: D40; D83; L10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| efficiency of returns (D61) | number of returns in the market (G12) |
| social cost associated with product returns (L99) | efficient market outcome (D61) |
| monopoly conditions (D42) | nature of efficiency changes (D61) |
| product returns (L81) | search costs and match values (C78) |
| product returns (L81) | market outcome (D41) |