Consumer protection versus competition: the case of mandatory refunds

Bird, Davina and Garrod, Luke and Wilson, Chris M (2025): Consumer protection versus competition: the case of mandatory refunds.

Abstract

The consumer protection policy of mandating full refunds has received a lot of attention from policymakers and academics. Despite this, not enough is known about how sellers strategically respond to the policy and the market conditions under which such strategic responses can lead to unintended consequences. To address this, we analyze the impact of the policy on market outcomes and welfare for a general class of competition models that continuously link monopoly to Bertrand. While consumers bene�t in sufficiently uncompetitive markets provided consumers' costs of returning the good are low, we show how consumers will always be harmed in sufficiently competitive markets. Furthermore, in an example model that falls within the general class, we demonstrate how the policy can surprisingly i) harm consumers even in very uncompetitive markets, close to monopoly, and ii) benefit consumers most in markets away from the monopoly extreme.

• Item Type: MPRA Paper
• Language: English
• Keywords: Refunds; Product Returns; Cancellation Rights; Consumer Protection; Competition
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D18 - Consumer Protection; D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M37 - Advertising

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