Hot Product
Axel Stock and Subramanian Balachander use a game-theoretic model to ask whether scarcity strategies, making a product hard to get so that it becomes a hot product, can be optimal. They find that a high-quality seller may make its product scarce to credibly signal quality to uninformed customers, most often when the marginal cost difference between high and low-quality products is small, the reservation price for a low-quality product is low, reservation prices for a high-quality product vary widely and the number of informed consumers is moderate. The authors suggest this explains why scarcity is common in discretionary and specialty products and rare in commodities.
Axel Stock and Subramanian Balachander use a game-theoretic model to ask whether scarcity strategies, making a product hard to get so that it becomes a hot product, can be optimal. They find that a high-quality seller may make its product scarce to credibly signal quality to uninformed customers, most often when the marginal cost difference between high and low-quality products is small, the reservation price for a low-quality product is low, reservation prices for a high-quality product vary widely and the number of informed consumers is moderate. The authors suggest this explains why scarcity is common in discretionary and specialty products and rare in commodities.
Written from the abstract read 2026-10-21 via IDEAS.
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: A Signaling Explanation of Marketers' Scarcity Strategy.' Management Science, 51(8), 1181-1192. doi:10.1287/mnsc.1050.0381