Abstract: This paper analyzes the optimal pricing policies, sales effort strategies and contracts design within a O2O mode that consists of a supplier and an online retailer. The online retailer offers a money-back guarantee, which allows customers to return unsatisfactory products to the online retailer for a full refund. Based on the rational expectations hypothesis, a function of consumers’ expected utility and a two-stage dynamic game mode are constructed in this paper. By the solutions, we derive, for each participant, the optimal profit of system and the optimal equilibrium point among pricing, demands and profits. Then, we investigate the impact of the showroom on the consumer purchasing behaviors and consumer surplus. The results show that, the introduction of the showroom can increase the demand for the products and decrease product return rates, and it is favorable for the expected profit of the online retailer. Moreover, the introduction of showroom can effectively increase the supplier and system’s profit. Customers who give relatively low valuations will be attracted by the introduction of showroom, and thus consumer surplus can be increased.

Key words: returned purchase, showroom, consumer surplus, pricing