Intraconsumer Price Discrimination with Credit Refund Policies.

This article focuses on the optimal design and profitability of credit refund policies—refunds issued as store credit with expiration terms—compared to traditional cash refund policies in retail and service industries. It develops a dynamic model where consumers have stochastic valuations over time and may return products with an exogenous probability, analyzing how credit refunds influence repeated purchase behavior. Key findings include that credit refund policies enable intraconsumer price discrimination by inducing low-valuation consumers to purchase as credits near expiration (the demand induction effect), often making such policies more profitable than cash refunds. The study also shows that credit refund policies can lead to win-win outcomes for firms and consumers under certain conditions, though consumer discounting of future surplus may reduce their appeal. Extensions consider endogenous return rates and consumer discounting, highlighting practical considerations and avenues for future research.