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Technical Note: Should an Online Seller Post Inventory Scarcity Messages?
Author(s) -
Park Sungho,
Rabinovich Elliot,
Tang Christopher S.,
Yin Rui,
Yu Jiayi Joey
Publication year - 2020
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/deci.12402
Subject(s) - scarcity , economic order quantity , profit margin , profit (economics) , order (exchange) , business , product (mathematics) , unit (ring theory) , lost sales , industrial organization , economics , marketing , microeconomics , operations research , supply chain , mathematics , geometry , mathematics education , finance
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 Economic Order Quantity (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.