Underpricing and perceived scarcity

Botir B. Okhunjanov, Jill J. McCluskey and Ron C. Mittelhammer

Journal of Economic Behavior & Organization, 2025, vol. 229, issue C

Abstract: We analyze why firms might set their prices below the market equilibrium levels and thereby create persistent excess demand. In a dynamic setting, if the excess demand results in a perception of scarcity, which is a demand shifter, cumulative discounted profits can be higher over time. Our empirical application is based on data from the market for “cult wines.” We find that the larger the difference between the secondary market price and the winemaker's release price, the higher the secondary market price will be for the same wine in the following year, which consistent with a scarcity-pricing strategy.

Keywords: Cult wines; Scarcity pricing (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:229:y:2025:i:c:s0167268124004876

DOI: 10.1016/j.jebo.2024.106873

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