Probabilistic selling with pity time mechanisms: Optimal pricing and consumer welfare
Journal
Omega (United Kingdom)
Series/Report No.
Omega United Kingdom
Journal Volume
144
Start Page
103608
ISSN
03050483
Date Issued
2026-10
Author(s)
Abstract
Probabilistic selling is a popular strategy used by companies to segment markets and boost profits, but its increasing adoption has raised consumer concerns, particularly regarding concealed probability information and associations with gambling. To address these issues, many sellers disclose details about the probabilities of their products, and some implement a “pity time” mechanism, which guarantees that if a consumer fails to obtain her desired product after a specified number of attempts, the seller will deliver it directly. This study examines the adoption of pity time mechanisms in probabilistic selling with vertically differentiated products and diverse consumer types. The findings show that when only a probabilistic product is offered, the pity time mechanism increases the seller's profit and improves consumer and social welfare, especially when quality differences between products are small or moderate, or when fewer consumers demand high-quality products. For sellers offering multiple products, the mechanism is more profitable when quality differences are small to moderate, or when more consumers prefer high-quality products. Moreover, whether the seller offers only a probabilistic product or multiple types of products, implementing a pity time mechanism consistently benefits the seller, consumers, and society, achieving a win-win-win outcome to the stakeholders.
Subjects
Pity time mechanism
Probabilistic selling
Revenue management
Social welfare
Vertically differentiation
Publisher
Elsevier Ltd
Type
journal article