Pricing substitutable products under consumer regrets

Yunjuan Kuang, Chi To Ng

Research output: Journal article publicationJournal articleAcademic researchpeer-review

4 Citations (Scopus)

Abstract

Since many firms provide consumers with substitutable products which may be launched sequentially over several periods, strategic consumers need to make their purchase-or-wait decisions at the beginning of the first period. However, they may face second period valuation uncertainty when such decisions are made, and decisions made under uncertainty may lead to regrets ex post. Lots of empirical studies show that consumers anticipate these regrets and take anticipated regrets into consideration. This paper studies the impact of valuation uncertainty and consumer anticipated regrets on consumer purchasing behavior, firm's prices and pricing strategy. We consider a firm selling two substitutable products over two periods, one product for one period, in a selling season. The firm announces all its prices at the beginning of the selling season (price commitment) or announces each price at the beginning of each period (dynamic pricing). Besides, a consumer may experience purchase regret from missing a better choice if she chooses to buy in the first period; and, otherwise, wait regret if she chooses to wait. Consumers make decisions based on the firm's prices and strategies, and the anticipated regrets. We find that a firm may need to set a lower price in the first period even when the average valuation in this period is higher. Second, with price commitment, the impact of each type of regret on the optimal second period price can be opposite and depends on the value of the uncertainty and regret parameters. Finally, we show that price commitment dominates dynamic pricing and the value of price commitment depends on the uncertainty and anticipated regret.

Original languageEnglish
Pages (from-to)286-300
Number of pages15
JournalInternational Journal of Production Economics
Volume203
DOIs
Publication statusPublished - Sep 2018

Keywords

  • Anticipated regret
  • Pricing strategy
  • Second period valuation uncertainty
  • Substitutable products

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering

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