Commentary On “Equilibrium Returns Policies in the Presence of Supplier Competition”

The recent article by Bandyopadhyay and Paul [Bandyopadhyay S, Paul AA (2010) Equilibrium returns policies in the presence of supplier competition. Marketing Sci. 29(5):846-857] searched for an explanation for the phenomenon the authors termed the "Pasternack paradox," i.e., why full-credit return policies, which were considered suboptimal from the perspective of channel coordination, are prevalent in practice. The authors argued that the underlying reason is that it is the competition between suppliers rather than the coordination among channel members that dominates business practice. We show that their model actually fails to generate the claimed results. Counterexamples are given. Alternative explanations are therefore needed for the seemingly suboptimal business practice.