Abstract

We characterize a selling mechanism that is robust to the seller’s uncertainty about the buyer’s signal structure. We show that by offering a generous refund policy, the seller can significantly reduce this type of uncertainty and regain market power. A simple mechanism that combines a generous refund policy and random non-refundable discounts achieves the best guaranteed-profit among all possible mechanisms.

JEL: D82, C79, D42
Keywords: optimal pricing, robustness, return policies, refunds, monopoly, information design, mechanism design

Download full paper (PDF, 224 KB)

About the presenter’s visit

Dr Keiichi Kawai will be visiting the School of Economics on Tuesday 23 July 2019.  While here he will be using room 520A Colin Clark Building.  If you would like to meet with him or have lunch or dinner with him please contact A/Prof Heiko Gerlach who will be his host while at The University of Queensland.  A/Prof Gerlach can be contacted on h.gerlach@uq.edu.au.

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Venue

Level 1
Chamberlain Building (#35)
The University of Queensland
St Lucia campus
Room: 
103