Resumen de Revenue maximizing with return policy when buyers have uncertain valuations

Jun Zhang

• This paper examines the optimal mechanism design problem when buyers have uncertain valuations. This uncertainty can only be resolved after the actual transactions take place and upon incurring significant post-purchase cost. We focus on two different settings regarding how the seller values a returned object (salvage value). We first study the case where the salvage value is exogenously determined. We find that the revenue maximizing mechanism is deterministic and �separable�. We illustrate that the optimal revenue can be implemented by a mechanism with a �no-questions-asked� return policy. In addition, we show that �linear return policies� are suboptimal when the hazard rates of initial estimates are monotone. We next examine the case where the salvage value is endogenously determined. We demonstrate that �separability� no longer holds and the �recall� of buyers is necessary in the optimal mechanism.