Preference for Scarcity

23 Pages Posted: 24 Mar 2022

See all articles by Soroush Ghazi

Soroush Ghazi

University of Alabama - Department of Economics, Finance and Legal Studies

Mark Schneider

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: June 29, 2021

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

Suggested Citation

Ghazi, Soroush and Schneider, Mark, Preference for Scarcity (June 29, 2021). Available at SSRN: https://ssrn.com/abstract=4031091 or http://dx.doi.org/10.2139/ssrn.4031091

Soroush Ghazi (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

HOME PAGE: http://sites.google.com/view/soroush-ghazi

Mark Schneider

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

361 Stadium Dr, Ste 200
Tuscaloosa, AL 35487
United States

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