Working Paper: CEPR ID: DP12480
Authors: Pascal Courty; Sinan Ozel
Abstract: Online retailers use scarcity cues to increase sales. Many fear that these pressure tactics are meant to manipulate behavioral biases by creating a sense of urgency. At the same time, scarcity cues could also convey valuable information. We measure the value of the scarcitymessages posted by Expedia to a Bayesian rational consumer. A signal reveals information on the number of seats available at the posted price. Consumers can use this information to optimally time when they purchase a ticket. The maximum increase in expected utilityfor a naive consumer, who does not use publicly available information, is 8 percent. For a sophisticated consumer, the increase is between 4-7 percent. Scarcity signals have a negligible impact on seller revenue and consumption.
Keywords: scarcity; persuasion; online recommendations; price discrimination; airline ticket
JEL Codes: L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| scarcity signals (D89) | expected utility for naive consumers (D11) |
| scarcity signals (D89) | expected utility for sophisticated consumers (D11) |
| scarcity signals (D89) | consumer purchasing behavior (D19) |
| scarcity signals (D89) | seller revenue (L85) |
| scarcity signals (D89) | consumer decision-making process (D12) |