Optimal Information Design of Online Marketplaces with Return Rights

Abstract

Consumer data increasingly enable online marketplaces to identify buyers’ preferences and provide individualized product information. Buyers, however, fully learn their product value only after contracting, when the product is delivered. I characterize the impact of such ex ante information on buyer surplus and seller surplus, when the seller sets prices and refund conditions in response to the ex ante information. I show that efficient trade and an arbitrary split of the surplus can be achieved. For the buyer-optimal signal, low-valuation buyers remain partially uninformed. Such a signal induces the seller to sell at low prices without refund options.