Anticipated Regret and Product Innovation

When a …rm introduces a product with new features, some consumers may …nd it di¢ cult to assess their valuations for these new attributes. Their purchase decisions made under such uncertainty may lead to post-purchase regret. It has been experimentally shown that consumers anticipate their potential post-purchase regret in the future and make their current choices to mitigate or minimize it. That is, a consumer’s anticipated regret can signi…cantly impact his purchase decision. Given the trend among the …rms in various markets to invoke regret to stimulate sales, this paper analytically explores whether and how anticipated regret a¤ects competing …rms’pro…ts and product innovation. We …nd that anticipated regret can have both positive and negative e¤ect on innovation and …rms’pro…ts. Our analyses reveal that the consumer’s anticipated regret has non-monotonic e¤ects on the level of innovation and …rms’pro…ts.