Advance selling and service cancelation when consumers are overconfident

Abstract

Purpose This paper aims to study the joint decision making of advance selling and service cancelation for service provides with limited capacity when consumers are overconfident.Design/methodology/approach For the case in which consumers encounter uncertainties about product valuation and consumption states in the advance period and are overconfident about the probability of a good state, we study how the service provider chooses the optimal sales strategy among the non-advance selling strategy, the advance selling and disallowing cancelation strategy, and the advance selling and allowing cancelation strategy. We also discuss how overconfidence influences the service provider’s decision making.Findings The results show that when service capacity is sufficient, the service provider should adopt advance selling and disallow cancelation; when service capacity is insufficient, the service provider should still implement advance selling but allow cancelation; and when service capacity is extremely insufficient, the service provider should offer spot sales. Moreover, overconfidence weakens the necessity to allow cancelation under sufficient service capacity and enhances it under insufficient service capacity but is always advantageous to advance selling.Practical implications The obtained results provide managerial insights for service providers to make advance selling decisions.Originality/value This paper is among the first to explore the effect of consumers’ overconfidence on the joint decision of advance selling and service cancelation under capacity constraints.