Technical Note: Should an Online Seller Post Inventory Scarcity Messages?

22 Pages Posted: 10 May 2019

See all articles by Sungho Park

Sungho Park

Arizona State University (ASU) - W.P. Carey School of Business

Elliot Rabinovich

Arizona State University - W.P. Carey School of Business

Christopher S. Tang

University of California, Los Angeles (UCLA) - Decisions, Operations, and Technology Management (DOTM) Area

Rui Yin

Arizona State University, W. P. Carey School of Business

Jiayi Joey Yu

Fudan University - School of Management

Date Written: April 11, 2019

Abstract

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

Park, Sungho and Rabinovich, Elliot and Tang, Christopher S. and Yin, Rui and Yu, Jiayi, Technical Note: Should an Online Seller Post Inventory Scarcity Messages? (April 11, 2019). Available at SSRN: https://ssrn.com/abstract=3370645 or http://dx.doi.org/10.2139/ssrn.3370645

Sungho Park

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Marketing Department
PO Box 874106
Tempe, AZ 85287-4106
United States

Elliot Rabinovich

Arizona State University - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

Christopher S. Tang

University of California, Los Angeles (UCLA) - Decisions, Operations, and Technology Management (DOTM) Area ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://www.anderson.ucla.edu/x980.xml

Rui Yin (Contact Author)

Arizona State University, W. P. Carey School of Business ( email )

Tempe, AZ
United States
4809652998 (Phone)

Jiayi Yu

Fudan University - School of Management ( email )

670 Guoshun Road
Shanghai, Shanghai 200433
China

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