Supply Chain Coordination for Returns in Internet Sales

False failure returns is especially serious for internet sales, the cost of a false failure returns is significant and incurred primarily by the manufacturer. However, reducing false failure returns requires e-tailer's service effort, such as detailed description, high-legible pictures, and perfect after-sales supports. However, there is lack of incentive for e-tailer to exert effort under the wholesale price-only contracts, which leads to the failure of supply chain coordination. In this paper, we designed a discount punishment contract to coordinate the E-supply chain in order to reduce false failure returns, which gives the e-tailer a discounted wholesale price at first, and charges penalty for each false failure returns. This contract provides an incentive to the w-tailer to increase her effort, thus decreasing the number of false failures and increasing net sales. We show that this contract can achieve channel coordination and a win-win outcome for both manufacture and e-tailer.