Effects of free return policies on digital media product sales: Evidence from a knowledge-sharing platform

With the emergence of information technology, a wide variety of digital media products can be traded through online platforms. Digital media products are experience goods that often suffer from information asymmetry. Product return policies, as a popular and effective mechanism to reduce information asymmetry, have attracted extensive research efforts. Existing studies mainly focus on physical products that are often associated with high return costs; however, the effects of return policies on digital media products remains unexplored. To fill this research gap, this study empirically analyzes the impact of free returns on digital media products. Moreover, the moderating effect of online reviews on free returns is also investigated. Using data from a Chinese knowledge-sharing platform, two main findings are derived. First, a free return policy has a surprisingly negative impact on sales of digital media products. Second, the negative influence of free returns is weakened by the emergence of online reviews. This research contributes to the information system literature by exploring the effect of free returns on sales of digital media products in online marketplaces. From a managerial perspective, these findings will help platforms design an optimal return policy, improve customer satisfaction, and enhance long-term profitability.