Information Acquisition and Refunds for Returns

A product exhibits personal fit uncertainty when its consumers have idiosyncratic and uncertain values for it. Often a consumer can learn her long-run value quickly by obtaining the good for a trial period. Money back guarantees of satisfaction are commonly used to lower the cost to consumers of learning their values this way. Increasingly, however, consumers can instead learn about their values before they purchase by, e.g., reading product reviews or consulting experts. We study the effect on a firm’s optimal price and refund of this competing source of information. An efficient outcome would be achieved by setting the refund for a return equal to its salvage value. But a monopoly will, for some parameters, induce consumers to stay uninformed by promising a refund that is greater than the salvage value. This generates an inefficiently large number of returns, which the firm finds worthwhile in order to eliminate the information rents that consumers would obtain by becoming informed. This finding is consistent with the observation that for many products, money back guarantees are generous, as they commonly refund the entire, or almost the entire, purchase price of a product.information acquisition, refunds, money back guarantees, personal fit uncertainty

Information Acquisition and Refunds for Returns

A product exhibits personal fit uncertainty when its consumers have idiosyncratic and uncertain values for it. Often a consumer can learn her long-run value quickly by obtaining the good for a trial period. Money back guarantees of satisfaction are commonly used to lower the cost to consumers of learning their values this way. Increasingly, however, consumers can instead learn about their values before they purchase by, e.g., reading product reviews or consulting experts. We study the effect on a firm’s optimal price and refund of this competing source of information. An efficient outcome would be achieved by setting the refund for a return equal to its salvage value. But a monopoly will, for some parameters, induce consumers to stay uninformed by promising a refund that is greater than the salvage value. This generates an inefficiently large number of returns, which the firm finds worthwhile in order to eliminate the information rents that consumers would obtain by becoming informed. This finding is consistent with the observation that for many products, money back guarantees are generous, as they commonly refund the entire, or almost the entire, purchase price of a product.information acquisition, refunds, money back guarantees, personal fit uncertainty

Information Acquisition and the Excess Refund Puzzle

A buyer can learn her value for a returnable experience good by trying it out, with the option of returning the good for whatever refund the seller offers. Sellers tend to offer a “no questions asked” refund for such returns, a money back guarantee. The refund is often too generous, generating inefficiently high levels of returns. We present two versions of a model of a returnable goods market. In the Information Acquisition Model, consumers are ex ante identical and uninformed of their private values for the good. The firm then offers a generous refund in order to induce the consumers to learn their values by purchasing and trying the good out, rather than by doing costly research prior to purchasing. In the Screening Model, some consumers have negligible costs of becoming informed about their values prior to purchasing, and always do so; other consumers have prohibitive costs of acquiring pre-purchase information and always stay uninformed. The firm’s optimal screening menu may then contain only a single contract, one that specifies a generous refund, and hence a high purchase price, in order to weaken the incentive constraint of the informed consumers.information acquisition, refunds, money back guarantees, returnable experience goods

Shock Tube Flows Past Partially Opened Diaphragms

Unsteady compressible flows resulting from the incomplete burst of the shock tube diaphragm are investigated both experimentally and numerically for different initial pressure ratios and opening diameters. The intensity of the shock wave is found to be lower than that corresponding to a complete opening. A heuristic relation is proposed to compute the shock strength as a function of the relative area of the open portion of the diaphragm. Strong pressure oscillations past the shock front are also observed. These multi-dimensional disturbances are generated when the initially normal shock wave diffracts from the diaphragm edges and reflects on the shock tube walls, resulting in a complex unsteady flow field behind the leading shock wave. The limiting local frequency of the pressure oscillations is found to be very close to the ratio of acoustic wave speed in the perturbed region to the shock tube diameter. The power associated with these pressure oscillations decreases with increasing distance from the diaphragm since the diffracted and reflected shocks partially coalesce into a single normal shock front. A simple analytical model is devised to explain the reduction of the local frequency of the disturbances as the distance from the leading shock increases

Money-Back Warranties

We present a model of monopoly provision of money-back warranties. A buyer values an object more than its seller. They are both risk neutral and initially have no private information. The buyer can, however, acquire information and learn his true valuation for the object. Information acquisition is wasteful because it is costly, and because it reduces the gains from trade. The seller uses a warranty to prevent wasteful information acquisition, by offering the buyer some of the benefit that the information would have given him, namely, the ability not to purchase useless objects. We compare the optimal contracts when a warranty can be offered and when it cannot. We find that when the cost of information is lower than a threshold, allowing the seller to offer a warranty is welfare improving. However, when the cost of information is higher than the threshold, it is socially optimal to forbid money-back warranties.

A multifrequency and multisensor approach for the study and the restoration of monuments: the case of the Cathedral of Matera

Abstract. In this paper we propose an integrated approach to diagnostic prospecting applied to the cathedral of Matera, in Southern Italy. In particular, we have performed both an ultrasonic tomography and a high frequency GPR prospecting on some pillars of the Church to investigate about possible structural yielding and a GPR prospecting at lower frequencies on the floor, where also a linear inversion algorithm has been applied to the data