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The hot-toy problem

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  • Tabarrok, Alexander

Abstract

Every year around Christmas there are shortages of the "hot toy." Why don't sellers raise the price? The hot-toy problem is puzzling if we assume that a "big" shortage implies that a $500 bill is being left on the ground. I show that a big shortage does not necessarily imply large losses in profits. Indeed, the bigger the shortage as conventionally measured the smaller the loss in profit from underpricing. The analysis of the hot-toy problem demonstrates that the conventional definition of a shortage can be misleading and should be modified in favor of a definition based on the difference between the marginal willingness to pay and price.

Suggested Citation

  • Tabarrok, Alexander, 2008. "The hot-toy problem," Journal of Economic Behavior & Organization, Elsevier, vol. 67(2), pages 512-516, August.
    • Handle: RePEc:eee:jeborg:v:67:y:2008:i:2:p:512-516
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    References listed on IDEAS

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    1. Barzel, Yoram, 1974. "A Theory of Rationing by Waiting," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 73-95, April.
    2. Becker, Gary S, 1991. "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1109-1116, October.
    3. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
    4. Suen, Wing, 1989. "Rationing and Rent Dissipation in the Presence of Heterogeneous Individuals," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1384-1394, December.
    5. Bulow, Jeremy & Klemperer, Paul, 1994. "Rational Frenzies and Crashes," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 1-23, February.
    6. Haddock, David D & McChesney, Fred S, 1994. "Why Do Firms Contrive Shortages? The Economics of Intentional Mispricing," Economic Inquiry, Western Economic Association International, vol. 32(4), pages 562-581, October.
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    Cited by:

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    2. Khouja, Moutaz & Christou, Eliana & Stylianou, Antonis, 2020. "A heuristic approach to in-season capacity allocation in a multi-product newsvendor model," Omega, Elsevier, vol. 95(C).

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