Greening level and pricing decisions of the green product supply chain in the presence of consumers’ anticipated regret

Abstract

When a firm introduces a new improved eco-friendly product into the market of the congeneric non-green product with the same baseline attribute, consumers are uncertain about the true valuation of this green product. Thus, when choosing between the green product and non-green product, consumers will anticipate the potential regret in the future and try to minimize it, and their purchasing decisions will be affected. This paper investigates the impact of consumers’ anticipated regret on the manufacturer’s and retailer’s optimal pricing and greening level decisions of these two kinds of products. By a game theoretic model in which the manufacturer is the leader, we derive the optimal wholesale price, greening level and retail price. Our analysis shows that the manufacturer and retailer can benefit or loss from consumers’ two types of anticipated regret in equilibrium. Furthermore, the green product’ optimal wholesale price and retail price, and greening level all decrease with green product-purchase regret but increase with non-green product-purchase regret in equilibrium. Interestingly, we also find that the non-green product’s optimal wholesale price and retail price are not affected by the consumers’ anticipated regret and the green product. This study provides retailers and manufacturers with new marketing management insights from the perspective of consumers’ anticipated regret behavior, and outlines the guidelines for them on invoking or mitigating consumers’ regret to increase profit or demand at the right time.