The impact of quantity commitment with disappointment-averse and elation-seeking consumers

Abstract

This paper compares perishable retailers’ quantity commitment (QC) to rational expectations equilibrium (REE) when they sell at a markdown strategy over two periods, where strategic consumers are disappointment averse and elation seeking, respectively. Strategic consumers weigh the expected utility of buying the product at high and low price to determine purchase timing. In low-price period, due to the risk of shortage, strategic consumers will feel a sense of elation (disappointment) which increases (decreases) their utility. In addition, when disappointment has a higher impact on utility than elation, strategic consumers are disappointment averse, otherwise, they are elation seeking. The results show that, QC is always not inferior to REE. Particularly, when the disappointment aversion (DA) level is below the threshold or in elation seeking (ES) case, QC is strictly superior to REE when the strategic consumers’ proportion is above the medium critical value. Moreover, in this case, the value of QC increases in the strategic consumers’ proportion and the DA level (or decreases in the ES level) when the proportion is medium, while it is independent of the proportion and decreases in the DA level (or increases in the ES level) when the proportion is high.