Seminar （Dept. of Trade Economics）

Theme：Search prominence with costly product returns

Speaker：Sanxi Li (Renmin University of China)

Time：2021-06-16 16:00

Address：Room 1007, Mingde Business Building

Language：Chinese/English

Abstract:

Search prominence can be non-profitable under costly product returns. In a Hotelling model of duopoly competition, we show that, due to the presence of information externality, a non-prominent firm can free ride a prominent firm’s return policy and make a higher profit. When firms can choose their return policies, a prominent firm will impose a more restrictive policy than a non-prominent firm. Moreover, when allowing product returns is compulsory, it can be a dominant strategy for both firms to choose a high search cost to avoid being prominent. Our results then demonstrate a complementary relationship between the advantage of search prominence and the cost of product returns. Furthermore, our main results are robust to various extensions.