How Can Sellers React to Consumers’ Anticipated Regret in an Online Markdown Policy?

The purpose of this study is to understand consumers’ anticipated regret in online purchase decisions and provide a realistic method for sellers to determine their markdown policy to optimize their revenue. This paper presented a mathematical model of a seller’s markdown policy under consumers’ anticipated regret and conducted a laboratory experiment to justify the existence of consumers’ anticipated regret in the markdown context. Consumers’ behavioral data were collected and used to estimate the values of the anticipated regret parameters in the markdown policy. Two interesting findings are achieved. First, the behavioral experiment justifies that consumers’ online purchase decisions will be affected by their anticipated regret behavior. Second, the seller’s optimal markdown policy that considers consumers’ anticipated regret performs better than the general markdown policy at maximizing revenue. This study can help sellers to better understand consumers’ anticipated regret in online purchase decisions and protect them from the negative consequences of miscalibrating the behavioral parameters in practice. It establishes a bridge between the mathematical modeling and behavioral laboratory experiment used to determine a seller’s optimal markdown policy. It also incorporates the impact of the product category and characteristics on consumers’ anticipated regret, which is a novel perspective. Finally, some valuable managerial insights are discussed.