Discussion Paper Details

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Title: The Value of Online Scarcity Signals

Author(s): Pascal Courty and Sinan Ozel

Publication Date: December 2017

Keyword(s): Airline Ticket., Online Recommendations, Persuasion, price discrimination and Scarcity

Programme Area(s): Industrial Organization

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 scarcity messages 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 utility for 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.

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Bibliographic Reference

Courty, P and Ozel, S. 2017. 'The Value of Online Scarcity Signals'. London, Centre for Economic Policy Research.