Probabilistic Selling and Resale

Download or read book Probabilistic Selling and Resale written by Tian Bai and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The burgeoning application of probabilistic selling (PS) in the retail industry spawns resale markets for component products, motivating investigation of the impact of resale markets on PS. In line with practice (e.g., Pop Mart), our basic model focuses on pure PS in which only probabilistic goods (PGs) with even allocation are sold to consumers with unit-demand. Two competing effects of the resale market are in force: on the one hand, the competition from the resale market suppresses the primary sales to strategic consumers; on the other hand, the resale opportunity induces those consumers with weak preferences to pay more for a PG, enabling the firm to charge a higher price. We find that the resale effect can dominate the competition effect, and thus, a monopoly firm benefits from the resale market when the component products are highly differentiated. In particular, a win-win situation can arise for the firm and consumers. Three extensions are analyzed. First, we endogenize the probability used for PGs, allowing some components to be delivered more than others. Counterintuitively, we identify that this uneven allocation can be optimal for less differentiated (albeit symmetric) products. Second, we examine the mixed PS case where the firm sells component products and PGs simultaneously. For highly differentiated products, pure PS and mixed PS lead to the same profit, which partially explains the adoption of pure PS in practice. Finally, we show that repeat purchases under consumer variety seeking can make the firm better off with the resale market even for less differentiated products. In addition, variety seeking leads the firm to providing a bundle of component products (i.e., the whole set), but the presence of resale hurts the firm if both the whole set and PGs are offered.