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The impact of consumer’s regret on firms’ decisions in a durable good market

Qianshuo Liu

Journal of Economics, 2023, vol. 139, issue 2, No 2, 125-157

Abstract: Abstract This paper studies how the consumer’s anticipated regret affects the firms’ pricing decisions and profits in a duopoly market. I consider a two-period game with differentiated durable products, where an incumbent sells a basic version over two periods, and an entrant releases an improved version in period 2, of which the improved features are difficult to assess by the consumers. This ambiguity will lead to regret. This paper focuses on two types of regret: a consumer may regret purchasing in period 1 instead of purchasing in period 2 (action regret); a consumer who waited until period 2 might regret not buying in period 1 (inaction regret). The consumers can anticipate the possible regret, which will influence the consumer’s decision-making. The results show that both types of anticipated regret may increase or decrease the incumbent’s profit. In contrast, action (inaction) regret always benefits (harms) the entrant. Besides, the analysis indicates that the improved version’s quality may either strengthen or weaken the impact of regret. Moreover, this paper examines the robustness of the results under different setups.

Keywords: Consumers’ anticipated regret; Uncertainty; Duopoly competition; Durable good (search for similar items in EconPapers)
JEL-codes: D21 D81 L11 L13 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:139:y:2023:i:2:d:10.1007_s00712-023-00819-w

DOI: 10.1007/s00712-023-00819-w

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