Technical Note: Should an Online Seller Post Inventory Scarcity Messages?
22 Pages Posted: 10 May 2019
Date Written: April 11, 2019
Recent research suggests that the sales rate of a product would increase immediately after a seller posts a "scarcity message" to alert potential consumers that there are only a few units left in inventory. Knowing this effect, should an online seller post scarcity messages? In this technical note, we develop and analyze a variant of the EOQ model to capture this effect in an environment involving the sale of slow moving items. Our result suggests that, in general, posting scarcity messages is beneficial only for products with high or low retail margins. Scarcity messages will not be beneficial for products with moderate retail margins because the resulting extra ordering/inventory cost per unit of time outweighs the resulting extra gross profit per unit of time for these products.
Keywords: Inventory scarcity, online retailing, EOQ model
JEL Classification: M31
Suggested Citation: Suggested Citation