Abstract: With rapid development of information technology, probabilistic selling, as a novel sales strategy, has been used widely in travel industry. The consumers' anticipated loss and its role are explored in a competitive market consisted of a vertical random product and its transparent rival. In our two-firm model, one firm (Firm H) provides a product with high quality (product H) and sells it transparently. The other firm (Firm R) provides two products with lower and different qualities (products M and L) and can mix them to create any possible random products, in addition to transparent products M and L. It starts with the benchmark case in which consumers have loss neutrality. It is shown that Firm R offers the random product only when the quality of product H is intermediate. When product H's quality is too high, Firm R offers product M because the product differentiation is large enough and it can extract more surplus from the consumers who value quality without worrying much about competition. When product H's quality is too low, Firm R will only offer product L to maximize differentiation from product H. Therefore, when the quality of product H is intermediate, a random product that mixes M and L should be offered to better balance surplus extraction and product differentiation by adjusting the probability of obtaining L. The case is then explored in which consumers can anticipate the potential-post purchase loss. Our results suggest that the consumers' anticipated loss can actually incentivize the firm to adopt probabilistic selling, depending on the relative magnitude of consumers' sensitivity to purchase loss and selection loss. Furthermore, even when consumers are extremely averse to selection loss, the random product should still be provided because of the benefits from the "reverse quality discrimination." Moreover, numerical application results and some parameters sensitivity analysis are given. Finally, some feasible and practical management insights are gotten.

Key words: probabilistic selling, loss aversion, differentiated quality product, loss neutral, traditional selling