Abstract: The optimal quantity in a two-level supply chain model consisting of a manufacturer, a retailer and consumer considering money-back guarantees is studied.The effects of money-back guarantees and decision sequence on equilibrium results, threshold of adding direct channel are analyzed. By the comparison analysis, it is found that in a single retail channel supply chain, compared to not offering money back guarantees, offering money back guarantees not only increases total sales, manufacturer profit and consumer surplus, but also increases retailer profit. Offering money back guarantees enables manufacturer, retailer and consumers achieve “three wins”. In the dual-channel supply chain, whether it is a sequential decision or a simultaneous decision, offering money back guarantees always reduces the retailer’s profit, and the retailer’s profit increases with the direct sales cost; offering money back guarantees increases the direct sales volume and the total sales volume. Direct sales volume and total sales volume decrease with direct sales cost, manufacturer's profit and total profit decrease first and then increase with direct sales cost; in the case of sequential decision-making, direct sales volume increases with retail satisfaction, but in the case of simultaneous decision-making, direct sales volume decreases with retail satisfaction. When retail satisfaction is high and direct selling costs are low, offering money back guarantees can improve manufacturer profit, but when retail satisfaction is high and direct selling costs are high, offering money back guarantees reduces manufacturer profit.

Key words: money-back guarantees; direct market; encroachment; quantity decision