Platform Operations With Consumer Returns Windows: Reselling Mode Versus Marketplace Mode

Abstract

In platform operations, consumer returns are common. In this article, considering the consumer returns window (CRW), we analytically study the manufacturer's operational decisions using the marketplace mode and reselling mode. We explore both the exogenous and endogenous CRW scenarios. We uncover several findings: First, with an exogenous CRW, the optimal production quantities using the marketplace mode and reselling mode always decrease with the fitness between the product and consumers’ taste; the optimal production quantity using the marketplace mode increases in the commission rate, and the optimal profits of the manufacturer and platform increase in MRE (i.e., the marketplace relative efficiency). Second, with an endogenous CRW, the manufacturer's optimal profit first decreases and then increases with MRE, while the platform's optimal profit increases with MRE. Third, the manufacturer prefers the reselling mode (marketplace mode) if MRE is low (high) under the case with an exogenous CRW. However, the result is opposite with an endogenous CRW. Last, using an online–offline salvage-revenue sharing contract can always coordinate the platform system under both the reselling mode and marketplace mode.