Lenient or Stringent: Managing Returnless Refunds on Retail Platforms
Prof. Xiaomeng Guo
Associate Professor
Department of Logistics and Maritime Studies
The Hong Kong Polytechnic University (PolyU)
Many retail platforms have adopted a returnless refund policy, allowing consumers to receive refunds without returning products. By eliminating returns, this policy can enhance consumer satisfaction, reduce retailer costs, and mitigate waste from unnecessary shipments and landfills. However, its generosity also risks exploitation by opportunistic consumers who may engage in dishonest behavior. This paper examines the optimal returnless refund policy and its implications for retailers, platforms, consumers, and social welfare. We develop a game-theoretical model in which a retailer sells its product via a platform. A fraction of consumers are ethical and only request returnless refunds when receiving low-value products, while the rest are opportunistic consumers who request refunds regardless of product value. The request type is unobservable to the retailer and platform, but it can send an imperfect signal through detection. We consider two scenarios where the policymaker for returnless refunds is either the retailer or the platform. The policy pertains to the level of strictness—whether to accept each refund request given the corresponding signal received. Our analysis yields several interesting findings: First, the platform and the retailer do not necessarily align in their preferences for policy strictness; each may prefer a stricter policy than the other does. Second, fewer opportunistic consumers or higher detection accuracy may be detrimental to both the retailer and the platform, leading to adjustments in policy strictness, either stricter or more lenient. Lastly, we find that offering returnless refunds always benefits consumers, regardless of who implements the policy. However, the policy’s effect on total social waste varies depending on the policymaker: waste always decreases if the retailer implements the policy, whereas it may increase or decrease if the platform implements the policy. Therefore, it matters who is the policymaker for returnless refunds, and the answer is nontrivial.