Sell Probabilistic Goods? A Behavioral Explanation for Opaque Selling

Tingliang Huang () and Yimin Yu ()
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Tingliang Huang: Lally School of Management, Rensselaer Polytechnic Institute, Troy, New York 12180
Yimin Yu: Department of Management Sciences, College of Business, City University of Hong Kong, Kowloon, Hong Kong SAR

Marketing Science, 2014, vol. 33, issue 5, 743-759

Abstract: Probabilistic or opaque selling, whereby a seller hides the exact identity of a product until after the buyer makes a payment, has been used in practice and received considerable attention in the literature. Under what conditions, and why, is probabilistic selling attractive to firms? The extant literature has offered the following explanations: to price discriminate heterogeneous consumers, to reduce supply–demand mismatches, and to soften price competition. In this paper, we provide a new explanation: to exploit consumer bounded rationality in the sense of anecdotal reasoning. We build a simple model where the firm is a monopoly, consumers are homogeneous, and there is no demand uncertainty or capacity constraint. This model allows us to isolate the impact of consumer bounded rationality on the adoption of opaque selling. We find that although it is never optimal to use opaque selling when consumers have rational expectations, it can be optimal when consumers are boundedly rational. We show that opaque selling may soften price competition and increase the industry profits as a result of consumer bounded rationality. Our findings underscore the importance of consumer bounded rationality and show that opaque selling might be even more attractive than previously thought.

Keywords: probabilistic goods; opaque selling; pricing; anecdotal reasoning; law of small numbers; bounded rationality (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:33:y:2014:i:5:p:743-759

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