Consumer Returns Policies and Supply Chain Coordination Contracts

This paper proposes supply chain models involving in consumer returns policies. In the model, the demand is made up of consumers and it is uncertainty, at the same time, consumers face valuation uncertainty and realized their valuation only after purchase. In this environment, consumers decide whether to purchase and then whether to return the product, whereas the retailer sets the price, quantity and refund. Using the model, we analyze the optimal decisions in both centralized and decentralized scenarios. Due to the double-marginalization effect of the decentralized supply chain, buy-back contract and differentiated buy-back contract are designed for supply chain coordination. Results show that the latter can attain supply chain coordination but the former does not.