Selling to Strategic Consumers: on the Benefits of Consumers’ Valuation Uncertainty
and Abundant Inventory

We consider a profit-maximizing seller who encounters consumers over two periods. The consumers face
valuation uncertainty in the first period, which is resolved in the second period. We show that when the seller
is capacity-constrained, then there is a threshold capacity above which the seller prefers facing strategic,
rather than myopic, consumers. Accounting for the seller’s stocking decisions, we find that the seller may
stock higher levels of inventory when faced with strategic consumers than when faced with myopic consumers.
We explore the seller’s incentive to allow returns: when all consumers are strategic, offering them a return
option could be revenue-enhancing. Moreover, it may be beneficial to provide a full, rather than a partial,
refund for the returns. We conclude by characterizing the purchase cancellation insurance—an option the
seller offers consumers as they face valuation uncertainty.