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

Sungho Park, Elliot Rabinovich, Christopher S. Tang, Rui Yin, Jiayi Joey Yu

Research output: Contribution to journalArticlepeer-review

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 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.

Original languageEnglish (US)
Pages (from-to)1288-1308
Number of pages21
JournalDecision Sciences
Volume51
Issue number5
DOIs
StatePublished - Oct 1 2020

Keywords

  • EOQ Model
  • Inventory Scarcity
  • Online Retailing

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Strategy and Management
  • Information Systems and Management
  • Management of Technology and Innovation

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