463 / 2024-04-25 15:57:23

The Rationale for Allowing Fraud Coupon Usage

threshold coupon design,partial returns,game theory

Threshold coupons, which specify a discount with a minimum purchase requirement, are widely offered by sellers to stimulate the purchase of products. However, if customer returns are allowed, sophisticated customers might use coupons strategically; they first buy up to the minimum purchase requirement to qualify for the discount, and then return unneeded products to sellers to receive a full refund for the returned items, resulting in a price reduction for those items kept. We build a game-theoretic model to study a seller’s threshold coupon design in the presence of customer returns. We uncover the rationale for the seller to allow customers’ strategic coupon usage behavior.