At the end of the day customers are the ones that pay for that, if they are happy, it's fine of course.
40% return rate would increase cost to the company ~20%, plus operational expenses to process the returns.
I think it's even more complex - consumer confidence in return processes probably makes them more likely to buy something in the first place, which reduces overall cost due to scale. So if you reduced consumer confidence, they would buy fewer items, which probably also harms the business (and raises consumer prices because scale is reduced).
In consumer products there is no real connection between costs and prices, what happens is that for a given item the final consumer price is set to whatever it is considered affordable by a large enough amount of people in the targeted niche.
Then how much it costs is secundary, it is the price that is fixed.
The difference between the costs and the price is the company's margin, one company may be clever and have 30% margins, another one may be less clever and have 5% or -10% (and will soon close) but the price remains fixed.
The 1/2/4 another member posted about is only a quick approximation, the 4 is fixed the 1 is irrelevant (to the retailer) the 2 is what may vary, if it becomes (say) 2.5 because of the return policy, the retailer will eat the reduced margin until, little by little, the price can be raised to 4.1, 4.2, 4.3, etc.
The inverse (reducing final price because the 2 became 1.5) never happens.
Competition may lower the price for a number of reasons (reduced margin because increased volumes as an example), but it is still largely independent from costs.