Abstract

Online retail platforms broaden the customer base but introduce uncertainty about product fit and increase product returns. As a result, information provision and return policy design are pivotal to retailers’ profitability and customer welfare. This thesis studies how retailers can coordinate four managerial levers – return policy, influence on customers, information provision and price – to achieve retail objectives in the era of social media. Three essays build a staircase of complexity, employing a game-theoretical framework
to explore issues from monopoly to competition.

The first essay considers a monopoly in which the firm determines both the refund and the influence level on customers. Closed-form results reveal that the two can act as substitutes: refunds may be more suitable for customers with low probability of product fit, while influence works better when it is moderate. Moreover, partial refunds consistently outperform influence, effectively serving as their substitute if permitted. Restricting the firm to a binary choice between no refund and a full refund may be conducive to simultaneous gains in profitability and consumer welfare.

The second essay discusses how the retailer should properly endogenize information provision by finetuning signal quality. The key finding is that when a high probability of product fit eliminates the strategic value of customer influence and refund, the retailer not only lacks incentive to enhance signal accuracy but may even find excessive precision to be detrimental for conversion. In contrast, with low fit probability, both information tools – through information precision and persuasive influence – and refunds become valuable
alternatives for inducing sales.

The third essay analyzes competitive pricing and influence on customers in a duopoly. The equilibrium characterizes how the sellers would craft price–influence decisions to gain competitive advantage. In particular, the seller with lower probability of fit relies on influence to attract marginal consumers, whereas the higher-fit seller gains no benefit from employing influence. Nonetheless, equilibrium dictates symmetry in pricing. Interestingly, influence on customers can strengthen the set of customers who are loyal to the
rival. Furthermore, higher signal quality or external price constraints narrow the set of loyal customers, thereby increasing the strategic value of influence.