Premium pricing and capacity rationing for advance selling with consumers regret

Retailers of iconic products commonly implement premium advance selling, which typically triggers regret in consumers. A premium advance selling strategy is centered around differences in pricing and capacity rationing between two selling periods. We develop a decision-theoretic model to capture the key dynamics of a retailer and a unit mass of consumers. We analyze the retailer's decisions on premium pricing and capacity rationing both separately and jointly. We characterize the retailer's strategy equilibrium under certain market conditions and investigate the effect of consumers anticipated regret on the outcomes. Our findings highlight the importance of the relative strength of regret and the difference between premium and spot pricing when a retailer adopts premium advance selling. Our analysis further identifies the forces driving a retailer's use of disparate selling strategies. We contribute to the field by offering tangible insights into whether and how premium advance selling should be adopted to help retailers more proactively leverage or mitigate consumers' regret.