Regulating Cancellation Rights with Consumer Experimentation
Embedding consumer experimentation with a product or service into a market environment, we find that unregulated contracts induce too few returns or cancella tions, as they do not internalize a pecuniary externality on other firms in the market. Forcing firms to let consumers learn longer by imposing a commonly observed statutory minimum cancellation or refund period is socially efficient only when firms appropriate much of the market surplus, while it backfires otherwise. Interestingly, cancellation rights are a poor predictor of competition, as in the unregulated out come firms grant particularly generous rights when competition is neither too low nor too high.
Year of publication: |
2018
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Authors: | Hoffmann, Florian ; Inderst, Roman ; Turlo, Sergey |
Publisher: |
Kiel, Hamburg : ZBW – Leibniz Information Centre for Economics |
Saved in:
freely available
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