The Value of Disclosing Product Availability on Retail Platforms
30 Pages Posted: 20 Jul 2018 Last revised: 23 Sep 2018
Date Written: June 13, 2018
Online retail platforms disclose product availability to influence customer decisions, as a form of pressure selling designed to compel customers to rush into a purchase. Can the revelation of this information drive sales and profitability? We study the effect of disclosing product availability on market outcomes---product sales and returns---and identify the contexts where this effect is most powerful. We collaborate with an online retail platform to procure a year of transaction data on 190,696 products that span 1,290 brands and 472,980 customers. To causally identify our results, we use a generalized difference-in-differences design with matching that exploits one policy of the platform: it discloses product availability only for the last five units. We find that the disclosure of low availability messages causally increases sales---they grow by 16.9%---but these are more likely to be returned---product return rates increase by 15.2%. Returns are costly, and we study the platform's profitability by looking at net sales---product sales minus returns---, which increase by 15.8% after the platform reveals low availability. The positive effects on sales and profitability amplify when low availability signals are abundantly visible and used in conjunction with deeply discounted products sold in short campaigns with wide assortments. Furthermore, we find evidence that these signals---whose effect diminishes when customers engage with the platform via a mobile device---can be used to effectively upsell to customers. Managers of various retail platforms could leverage this study by customizing their information disclosure policies according to these insights.
Keywords: Retail platform, limited inventory information, product returns, upselling, mobile channel, generalized difference-in-differences
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