The impact of customer returns on pricing and order decisions

In this paper, we address the simultaneous determination of price and inventory replenishment when customers return product to the firm. We examine cases when the quantity of returned product is a function of both the quantity sold and the price, in single and multi-period problems, with and without uncertainty in demand.We derive results for optimal prices and order quantities and discuss how the firm should change price and inventory quantities in order to mitigate the negative effects of returns from customers.