Vertical Probabilistic Selling under Competition: the Role of Consumer Anticipated Regret

Yong Chao, Lin Liu () and Dongyuan Zhan ()
Additional contact information
Lin Liu: College of Business Administration, University of Central Florida, Orlando, FL USA 32816
Dongyuan Zhan: School of Management, University College London, London, UK E14 5AA

No 16-14, Working Papers from NET Institute

Abstract: This paper studies probabilistic selling with vertically differentiated products when firms compete and consumers anticipate the potential post-purchase regret raised by possibly obtaining the inferior products. Intuitively, anticipated regret hurts the attractiveness of probabilistic selling. However, we find that probabilistic selling can be more profitable, and more likely to arise with anticipated regret than without it. This is due to the ¡°reverse quality discrimination¡± (perceived quality of the random product becomes decreasing in consumer type at the competition margin), which increases the perceived differentiation, and may still maintain sufficient attractiveness of the random product for infra-marginal consumers. Meanwhile, it may hurt the competitor.

Keywords: reverse quality discrimination; probabilistic selling; vertical differentiation; anticipated regret; competition (search for similar items in EconPapers)
JEL-codes: D03 D43 L13 L15 M31 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2016-09
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
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Citations: View citations in EconPapers (2)

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