Preference for Scarcity

Abstract

We investigate consumers’ preference for scarcity in a real market with large stakes. We find evidence that the elasticity of demand for scarcity is constant across prices ranging from $50 to nearly $4 million, that preference for scarcity follows a power law, and that it explains 95% of the price variation across 3200 auction records. We provide a theoretical explanation for the functional form of scarcity preference in terms of Zipf’s law that underlies other regularities in the social sciences. We further find that an empirical pricing model based on a preference for scarcity closely predicts future prices out-of-sample.

Keywords: Preference for Scarcity, Constant Elasticity, Baseball Cards, Auctions

JEL Classification: D00, D91