Template-Type: ReDIF-Paper 1.0
Title: Regulating Cancellation Rights With Consumer Experimentation
Author-Name: Florian Hoffmann
Author-Email: fhoffmann@uni-bonn.de
Author-Name: Roman Inderst
Author-Email: inderst@finance.uni-frankfurt.de
Author-Name: Sergey Turlo
Author-Email: sergey.turlo@hof.uni-frankfurt.de
Classification-JEL: D82, D86, L51
Keywords: Consumer experimentation, cancellation rights, market equilibrium, externality, regulation, consumer protection

Abstract: Embedding consumer experimentation with a product or service into a market environment, 
we find that unregulated contracts induce too little returns or cancellations, as they do not 
internalize a pecuniary externality on other firms in the market. Forcing firms to let consumers 
learn longer by imposing a commonly observed statutory minimum cancellation or refund period is 
socially efficient only when firms appropriate much of the market surplus, while it backfires 
otherwise. Interestingly, cancellation rights are a poor predictor of competition, as in the 
unregulated outcome firms grant particularly generous rights when competition is neither too low 
nor too high. The overarching theme of our analysis is that both the individual benefits and the 
welfare consequences of (consumer) experimentation depend crucially on the consumer's reservation 
value, which is endogenous in a market environment.

Note: 
Length: 46
Creation-Date: 2018-10
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp045
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2018_045