Opaque Selling to Strategic Buyers

Abstract

   We aim to explain the popularity of opaque selling through a strategic model that encompasses both a seller intent on maximizing his long-run average profit rate and a continuum of strategic buyers guided by their own heterogeneous preferences. While facing demands for two closely related products, the seller can create an opaque option with price discounts and more guaranteed availabilities to entice buyers into accepting probabilistically assigned actual deliveries. We achieve several results after carrying out equilibrium analyses to the strategic model. For the seller, the benefit of opaque selling manifests in his newly acquired autonomy on opaque-good pricing. For buyers, their choices would be influenced by the rational expectations they form about the seller's regular-good fulfillment rate. A monotone trend of the equilibrium fulfillment rate with respect to the opaque-good price would turn out to advance buyers' interests. To a seller practicing opaque selling, a more ``patient'' replenishment policy that tolerates occasional lost sales seems to be more appealing than the widely accepted and yet less ``patient'' one of can-order. The latter, on the flip side, could still achieve a win-win outcome out of opaque selling, albeit at a somewhat subdued degree. Our strategic model thus explains opaque selling's popularity by demonstrating its benefit to both the seller and buyers. 

Keywords: Opaque Selling, Strategic Buyers, Rational Expectations, Inventory Management, Comparative Statics, Win-win Outcome