Advance Selling Without Disclosing the Regular Price? The Role of Anticipated Regret

Abstract

When a seller introduces an innovative product, some consumers may anticipate regret and factor it into their decision-making due to uncertain valuation. Motivated by current realities, we analyze the profitability of advance deposit selling strategies, both with and without disclosing the regular price. Using an analytical model incorporating consumers' anticipated regret, this study investigates (i) the optimal selling strategy and profits under consumer regret and (ii) whether a profit-maximizing seller should disclose the regular price in advance. The principal results are the following: (i) For the pre-disclosure strategy, sellers may miss opportunities for higher profits by ignoring consumers' inaction regret. Pre-sales-only strategies are optimal when action regret surpasses a certain threshold; the optimal deposit and the pre-sale price decrease (increase) in tandem with action (inaction) regret. (ii) When sellers do not disclose a regular price in advance, contrary to the pre-disclosure strategy, we find that they should pay more attention to action regret behavior, which can cause them to suffer more profit loss. An effective and interesting way to mitigate the adverse impact of action regret on financial gains is to provide a reservation guarantee: reduce both the deposit and the uncertainty of the regular price. Our paper calls for careful assessments of anticipated regrets. In particular, the seller should give weight to the (action) inaction regret behavior when implementing the (non-) pre-disclosure strategy, respectively.