An Empirical Analysis of Scarcity Strategies in the Automobile Industry

    Authors

    S. Balachander; Y. Liu;A. Stock

    Comments

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    Abbreviated Journal Title

    Manage. Sci.

    Keywords

    marketing; new products; competitive strategy; signaling; econometrics; aggregate logit models; economic theory testing; PRICING BEHAVIOR; PRODUCT QUALITY; DEMAND; PRICES; MARKET; Management; Operations Research & Management Science

    Abstract

    Recent product introductions such as the Xbox 360, Sony Playstation 2, and PT Cruiser have been characterized by shortage of these products. Some experts have suggested that such scarcity can be a deliberate strategy for making the product more desirable. In this paper, we empirically examine the relationship between introductory inventory levels and consumer preference in the U. S. automobile industry and show that relative scarcity of a car at the time of introduction is associated with higher consumer preference for the product. Furthermore, we perform an empirical test of alternative theories about the rationale for introductory product scarcity. Specifically, we consider two theories of supplier-induced scarcity, namely the buying frenzy theory and the signaling theory, and an alternative theory that suggests that demand uncertainty causes introductory product scarcity. We find more support for the signaling theory of supplier-induced scarcity than the buying frenzy theory or the demand uncertainty theory in our analysis of the automobile market.

    Journal Title

    Management Science

    Volume

    55

    Issue/Number

    10

    Publication Date

    1-1-2009

    Document Type

    Article

    Language

    English

    First Page

    1623

    Last Page

    1637

    WOS Identifier

    WOS:000270527900002

    ISSN

    0025-1909

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