Beneficial Product Returns in Supply Chains

Many retailers and manufacturers accept product returns from consumers (via money-back guarantees) and retailers (via full-credit return policies) respectively. While the extant literature focuses on either manufacturer or retailer return policies, this paper investigates both return policies and finds that a manufacturer's return policy can induce the retailer to adopt a return policy. Although accepting consumer returns hurts the manufacturer when the manufacturer sells through non-competing retailers, we find that the manufacturer is not destined to be hurt by accepting returns when selling to competing retailers that are differentiated in their returns rates.