Peter Newberry is currently an Associate Professor of Economics at the University of Georgia, Terry College of Business. Much of Professor Newberry’s research is on the Industrial Organization of digital markets, with an emphasis on issues that are unique to these markets.
Paper: https://www.colorado.edu/economics/sites/default/files/attached-files/newberry.pdf
Abstract: We study the impact of return policies in a large online retail platform. Utilizing variation in return policies across sellers of tablets on Alibaba’s Tmall, we estimate a model of demand and supply where the consumer has the option to return the product after purchasing it. We find that a more lenient return policy impacts demand through a reduction of the risk to the consumer, but does not serve to provide a strong signal of seller quality. On the supply side, estimates suggest that returns are costly for sellers, as they are approximately equal to the cost of proving a brand new tablet to the buyer. We use the model to estimate the effect of a platform level ban on returns, which serves as a quantification of the impact returns on Tmall. We find that the ban, despite lowering the level of demand, benefits consumers through lower prices. The reduction in prices comes not only from the pass through of the seller return cost savings, but also through the fact that restricting returns lowers sellers’ market power. For sellers, the reduction in demand and market power outweighs any gains from lower return costs, resulting in an overall reduction in profit. As the platform moves to a more lenient uniform return policy, which mimics policies implemented on Amazon and across China recently, consumer surplus decreases and seller profit increases. This suggests that the leniency of a platform-level return policy can work to undermine the goal of improving the customer experience due to the connection between the leniency of return policies and seller market power.
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