Download or read book The Role of Manufacturer Returns Policies in Learning the Demand written by Miklos Sarvary and published by . This book was released on 2000 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: Returns policies are usually though of as being a way to insure retailers against excess inventory. The work of Pellegrini(1986), Chu (1993), Lin (1993) and Padmanabhan and Png (1997) highlights the fact that there is considerably more toreturns polices than just a mechanism for insurance. Our work identifies a heretofore undocumented rationale for returnspolicy: its role in learning the demand for a new product. The model of manufacturer-retailer interaction assumes that thedemand is uncertain but correlated across time periods. Thus, its true nature is revealed over time via the realization of sales.The speed of such learning depends on the size of the inventory at the retail level which in turn can be strategically influencedby the manufacturer through a returns policy. In such environment, we show that a return policy may be a way for themanufacturer to learn the demand of a new product.