Quality Disclosure Strategy In A Decentralized Supply Chain With Consumer Returns

We study the quality disclosure strategy of a manufacturer/retailer in a supply chain with consumer returns for new products. In particular, we explicitly model the effect of quality disclosure on the reduction of the returns rate. We identify the condition in which the manufacturer/retailer should reveal product quality in the presence of consumer returns. We find that (1) the manufacturer/retailer has an incentive to choose quality disclosure strategy when the disclosure quality is above a lower bound; (2) if the returns rate of new products is low, the retailer-disclosure scenario leads to reveal more quality information than that of the manufacturer-disclosure scenario; otherwise, the manufacturer-disclosure scenario leads to reveal more quality information; and (3) the manufacturer prefers to reveal a higher level of product quality in the supply chain with a higher refund amount or a lower salvage value per unit of returned product.