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 study 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.