Advance selling without showing the price? The roles of anecdotal reasoning and capacity

Motivated by the recent practice, we study the advance selling strategy without showing the price (which may be coined as "probabilistic pricing"). We postulate that customers have boundedly rational expectations via anecdotal reasoning to anticipate the firm's pricing strategy. This bounded rationality thus induces the firm to strategically randomize prices to create intentional uncertainty for customers' decision making, even in the absence of demand and valuation uncertainties. Scarce capacity creates availability obfuscation (on top of stock-out risk) and may reduce the incentive for price obfuscation. We further find that if customers are not highly strategic (i.e., forward-looking), it is optimal to charge a fixed price that coincides with the optimal price with fully rational customers. Demand uncertainty does not influence the optimality of price obfuscation but tends to weaken its magnitude, and customers' valuation uncertainty may sometimes intensify the firm's incentives to obfuscate. Our study provides a novel behavioral explanation for the recent practice of probabilistic pricing.