Scarcity strategies under quasi-bayesian social learning

The introduction of popular experiential products is often accompanied by temporary stock outs. While the official story behind these supply shortages is typically one of capacity constraints, anecdotal evidence suggests that, at least in some cases, early stock outs may be firm-induced. This paper proposes a mechanism based on social learning (SL), through which early-scarcity strategies may be beneficial for the firm. A crucial component of this mechanism is that consumers, owing to the informational and cognitive burdens imposed on them by Bayesian learning, are less-than-fully rational (quasi-Bayesian) in a manner that is consistent with existing empirical evidence. We show that, under certain conditions, supply shortages can be beneficial for the firm, but only when these are combined with fixed-pricing. Interestingly, we observe that deliberate stock outs may result in an increase not only in firm profit, but also in consumer surplus. Furthermore, we demonstrate that early-scarcity strategies may allow the firm to approximate dynamic-pricing outcomes while charging a fixed price. Thus, we identify firm-induced supply shortages as a subtle and effective substitute for dynamic pricing in settings where the latter is difficult to implement