Unlocking the return insurance puzzle in e-commerce: A strategic dance between e-sellers and the e-platform

Abstract

As return insurance has become a prevalent strategy, understanding the influences of the return insurance remains a critical question. This study considers a supply chain comprising an e-platform and two competing e-sellers with different product qualities under a commission contract. Eight duopoly game models were constructed to uncover optimal return insurance policies and their influences for e-sellers and the e-platform, considering the customer heterogeneity. Several key findings emerge:1) When the e-platform does not offer return insurance, retailers determine the size of the premium and choose the optimal return strategy based on a combination of the premium, the commission rates, the return compensation, and the return rate; 2) When the e-platform does not offer return insurance, retailers can lower their prices to encourage consumers to decide whether or not to purchase return insurance by themselves; 3) The e-platform that offers return insurance can change retailers’ return strategy to the detriment of both the high quality e-sellers’ profits and their own revenue.