Robust Pricing with Refunds

08/07/2018

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by   Toomas Hinnosaar, et al.

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We characterize a selling mechanism that is robust to the seller's uncertainty about the buyer's signal structure. We show that by offering a generous refund policy the seller can significantly reduce this type of uncertainty and regain market power. A simple mechanism that utilizes a generous refund policy and random discounts achieves the best guaranteed-profit among all possible mechanisms.