Optimal introduction of price guarantee considering consumer returns in E-commerce platform promotion

Purpose Price guarantee (PG) has been widely adopted by e-commerce platforms as a key mechanism to deter promotional price fraud by merchants and to reduce returns of discounted products. This study investigates the platform’s optimal decision regarding the introduction of PG in its promotion campaign. Design/methodology/approach Considering that PG mitigates consumer returns caused by the post-promotion price reduction, the authors develop a game-theoretic model involving a merchant and an e-commerce platform. Findings First, the platform should implement PG policy in its promotion when both the PG claim rate and the initial return rate of the promotional product are below certain thresholds, and the base market size is large with a moderate merchant’s unit return loss. It should also adopt PG when the PG claim rate, commission rate and return rate are all low, the base market size is moderate and the unit return loss is relatively high. If the promotional cost is entirely borne by the merchant, the platform should consistently adopt this policy. Second, counterintuitively, PG may lead to a higher volume of consumer returns by significantly boosting promotion-period demand. Third, after the platform implements PG, the merchant should lower the promotional price but raise the PG-period price. This strategic pricing response can enhance profitability. Originality/value This study not only enriches the literature on PG and e-commerce platform promotions but also offers valuable managerial insights for corporate practice. These contributions support sustainable development of e-commerce retail ecosystems.