Mitigating the Double‐Blind Effect in Opaque Selling: Inventory and Information

Qing Li, Christopher S. Tang and He Xu

Production and Operations Management, 2020, vol. 29, issue 1, 35-54

Abstract: Opaque selling is a marketing strategy under which firms sell end‐of‐the‐season inventory of different products as a single opaque good and customers find out the specific products they actually get only after they have made the purchase. Opaque selling entails a “double‐blind” process: customers do not know the inventory level of each product, and the seller does not know their product preferences. This double‐blind process can result in customer dissatisfaction when customers do not receive the products they were hoping for, and the seller is unable to allocate the right product to the right customer. To reduce customer dissatisfaction arising from the double‐blind process, we examine whether the seller should: (i) reveal its inventory information to customers, (ii) solicit each customer’s product preference, or (iii) charge customers a higher price for removing product uncertainty; that is, sell specific goods and opaque good at the same time. To examine these issues, we analyze a model in which a firm sells two products as a single opaque good. We show that revealing inventory information or soliciting customer preferences results in higher customer surplus, but lower revenue for the firm. We then consider the case when the firm sells specific goods and opaque good at the same time. We show that relative to the case of selling only the opaque good, the firm’s revenue is strictly higher and customer surplus may be higher or lower. Specifically, when the price of specific goods is product dependent, selling specific goods and opaque good at the same time benefits the firm the most when the inventory levels of the two products are relatively balanced and their valuations are strongly skewed. When the price of specific goods is product independent, however, the firm gains the most when the inventory levels are relatively balanced but their valuations are not too strongly skewed. We also identify conditions under which the customer surplus is higher.

Date: 2020
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