Skip to main content

Please enter a keyword and click the arrow to search the site

Scarcity strategies under quasi-Bayesian social learning

Subject

Management Science and Operations

Publishing details

Working Paper

Authors / Editors

Savva N;Papanastasiou Y;Bakshi N

Biographies

Publication Year

2015

Abstract

This paper proposes a theory of firm-induced scarcity in the early stages of a new product's selling season. By restricting supply, the firm induces self-selection of customers who are likely to generate the most positive product reviews; this can be advantageous for the firm if, as suggested by existing empirical evidence, subsequent consumers do not appropriately account for the selection bias in the early review sample. We develop a novel model of quasi-Bayesian social learning that allows us to test the implications of this theory. Our analysis yields three main insights. First, the described rationale constitutes a pro table strategy for the firm only in settings characterized by price rigidity and only if the product's quality is not too high with respect to prior market expectations; for such cases, we provide guidelines on optimal pricing and quantity decisions. Second, although induced scarcity represents an e ort by the firm to manipulate the social learning process, this may result not only in an increase in the firm's pro t, but also in the consumers' surplus. Third, product scarcity may act as an effective substitute for dynamic pricing, allowing the firm to approximate dynamic-pricing outcomes while charging a fixed price.

Series

Working Paper

Available on ECCH

No


Select up to 4 programmes to compare

Select one more to compare
×
subscribe_image_desktop 5949B9BFE33243D782D1C7A17E3345D0

Sign up to receive our latest news and business thinking direct to your inbox

×

Sign up to receive our latest course information and business thinking

Leave your details above if you would like to receive emails containing the latest thought leadership, invitations to events and news about courses that could enhance your career. If you would prefer not to receive our emails, you can still access the case study by clicking the button below. You can opt-out of receiving our emails at any time by visiting: https://london.edu/my-profile-preferences or by unsubscribing through the link provided in our emails. View our Privacy Policy for more information on your rights.