Department of Economics. University of Melbourne. Melbourne Victoria 3010 Australia

We examine two different models of manufacturer-retailer successive monopoly with retail demand uncertainty. In the first, both manufacturer and retailer are symmetrically uninformed about demand. Equilibrium exists if and only if the marginal costs of production and storage are sufficiently high, in which case the manufacturer offers a full-returns policy. Together with previous results, this shows that both the structure of the uncertainty and the timing of its resolution are critical factors affecting the scope for returns policies. In the second model, the manufacturer knows demand while the retailer does not. A full-returns policy is never offered in this case. Moreover, if any partial-returns policy is offered, it does not serve to signal the level of demand.