Abstract: As a new return policy, return-freight insurance is attracting the attention of many e-tailers. The selection of return-freight insurance strategy for retail-quality differentiated e-retailers is studied. The e-tailer can choose complimentary return-freight insurance (CRI) or only offering return-freight insurance options (RI) to consumers, four return-freight insurance competition scenarios are discussed: (1)both of two e-tailers adopt complimentary return-freight insurance strategy (CRI);(2)the high retail quality e-tailer adopts complimentary return-freight insurance strategy (CRI) while the low retail quality e-tailer adopts return-freight insurance strategy (RI); (3)the high retail quality e-tailer adopts return-freight insurance strategy (RI) while the low retail quality e-tailer adopts complimentary return-freight insurance strategy (CRI);and (4)both of two e-tailers adopt return-freight insurance strategy (RI). The Hotelling model is utilized to describe the situation of two e-tailers in both monopoly market and duopoly market. Comparing to the money-back guarantee (MBG), the monopoly always benefits from the return-freight insurance policy when the return-freight insurance premium is not high. While in competitive setting both of the duopoly never benefit from the return-freight insurance policy simultaneously. Some meaningful results are deduced. (1) When two e-tailers adopt the differentiated return-freight insurance policy, the e-tailer offering RI loses market share and gets less profit when his return-freight insurance premium is high, while the other e-tailer offering CRI benefits more; When both of two e-tailers offering RI, the e-tailer gains the most market share and product profit when his return-freight insurance premium is low and the competitor's return-freight insurance premium is high. (2) Regardless of the degree of difference in retail quality between two e-tailers, offering RI is always an equilibrium strategy. (3) The return-freight insurance premiums play a key role affecting the equilibria. When both e-tailers’ return-freight insurance premiums are low, offering any kind of return-freight insurance is indifferent for the e-tailers; When one e-tailer’s return-freight insurance premiums is high while his competitor’s return-freight insurance premiums is low, the equilibria are that the e-tailer offering RI while his competitor offering CRI or RI, and the e-tailer can obtain the best benefit at the equilibrium; When the return-freight insurance premiums of both e-tailers are high, the equilibrium strategy is offering RI by both of two e-tailers and neither of them can obtain the best benefit at the equilibrium.

Key words: pricing, return-freight insurance, money-back guarantee, duopoly competition, retail quality differentiation