Abstract
This study investigates how retailers invest in‐store service by considering the possible service failure that occurs in a store, and consumers' disappointment concerns it causes. Specifically, we establish an analytical framework to examine several competitive scenarios. The results reveal that, first, the presence of disappointment concerns always decreases the in‐store service level in equilibrium, while ignoring it by retailers may result in their overinvestments in in‐store service. Although conventional wisdom may suggest offering more in‐store service to consumers helps the traditional retailer compete with online rivals, this may not be true in the presence of disappointment aversion.
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