Consumer search with anticipated regret

Abstract

Uncertainty before purchase often gives rise to postpurchase emotions that consumers might anticipate when making purchase decisions. Our study investigates how consumers' anticipated postpurchase regret affects their optimal search behavior and how this affects firms' price and assortment competition. The key tension considered in this study is that consumers balance between saving the cost of product evaluation by searching less and alleviating the potential postpurchase regret on their purchase by searching more. We use a classical sequential search framework to examine this key tension. Our results show that anticipated regret encourages more intense search across competitive alternatives, leading to an intensified price competition when search depth is exogenous (searching a fixed number of attributes) or when search depth is endogenous but full‐depth search (inspecting all attributes) emerges (with high regret intensity). However, when search depth is endogenous but partial‐depth search (inspecting a subset of attributes) emerges (with low regret intensity), the blessing effect of anticipated regret on softening firms' price competition begins to emerge. In addition, anticipated regret can achieve a “win‐win‐win” situation for consumers, firms, and the social planner. Moreover, multiproduct firms use different competitive devices with different levels of regret intensity: When regret intensity is low (high), firms focus on assortment (price) competition to retain consumers. The relevant managerial implications are discussed.