The impact of customer returns on decisions in a newsvendor problem with and without buyback policies

In this paper, we examine how customer returns influence the retailer's ordering decision, the manufacturer's wholesale price decision, and the profits of the manufacturer and the retailer, in a single-period, stochastic demand (newsvendor) setting. When the manufacturer is a Stackelberg leader and the retailer is the follower, we also examine how to contract a buyback policy, where the manufacturer buys back both unsold inventory and customer-returned products, so that both the manufacturer and the retailer are more profitable than if they operate independently. We also show how this work can be generalized to the case of multiple retailers.