Resumen de Refunds and returns in a vertically differentiated industry

Roman Inderst, Gilad Tirosh

• Firms frequently offer refunds, both when physical products are returned and when service contracts are terminated prematurely. We show how refunds act as a �metering device� when consumers learn about their personal valuation while experimenting with the product or service. Our theory predicts that low-quality firms offer inefficiently strict terms for refunds, while high-quality firms offer inefficiently generous terms. This may help to explain the observed variety in contractual terms.