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

40 Pages Posted: 11 Oct 2016  

Yong Chao

University of Louisville - College of Business - Department of Economics

Lin Liu

University of Central Florida

Dongyuan Zhan

UCL School of Management

Date Written: September 30, 2016

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

Suggested Citation

Chao, Yong and Liu, Lin and Zhan, Dongyuan, Vertical Probabilistic Selling under Competition: The Role of Consumer Anticipated Regret (September 30, 2016). NET Institute Working Paper No. 16-14. Available at SSRN: https://ssrn.com/abstract=2848543 or http://dx.doi.org/10.2139/ssrn.2848543

Yong Chao (Contact Author)

University of Louisville - College of Business - Department of Economics ( email )

Louisville, KY 40292
United States
(502)852-3573 (Phone)
(502)852-7672 (Fax)

HOME PAGE: http://yongchao.us

Lin Liu

University of Central Florida ( email )

4000 Central Florida Blvd
Orlando, FL 32816-1400
United States

Dongyuan Zhan

UCL School of Management ( email )

Gower Street
London, WC1E 6BT
United Kingdom

HOME PAGE: http://www-scf.usc.edu/~dzhan/

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