IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v229y2025ics0167268124004876.html
   My bibliography  Save this article

Underpricing and perceived scarcity

Author

Listed:
  • Okhunjanov, Botir B.
  • McCluskey, Jill J.
  • Mittelhammer, Ron 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.

Suggested Citation

  • Okhunjanov, Botir B. & McCluskey, Jill J. & Mittelhammer, Ron C., 2025. "Underpricing and perceived scarcity," Journal of Economic Behavior & Organization, Elsevier, vol. 229(C).
    • Handle: RePEc:eee:jeborg:v:229:y:2025:i:c:s0167268124004876
    DOI: 10.1016/j.jebo.2024.106873
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167268124004876
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jebo.2024.106873?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hilger, James & Rafert, Greg & Villas-Boas, Sofia Berto, 2007. "Expert Opinion and the Demand for Experience Goods: An Experimental Approach," CUDARE Working Papers 6055, University of California, Berkeley, Department of Agricultural and Resource Economics.
    2. Tabarrok, Alexander, 2008. "The hot-toy problem," Journal of Economic Behavior & Organization, Elsevier, vol. 67(2), pages 512-516, August.
    3. Ashenfelter, Orley, 2010. "Predicting the Quality and Prices of Bordeaux Wine," Journal of Wine Economics, Cambridge University Press, vol. 5(1), pages 40-52, April.
    4. 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.
    5. DeSerpa, Allan C & Faith, Roger L, 1996. ""Bru-u-u-uce": The Simple Economics of Mob Goods," Public Choice, Springer, vol. 89(1-2), pages 77-91, October.
    6. Jean-Marie Cardebat & Jean-Marc Figuet, 2004. "What explains Bordeaux wine prices?," Applied Economics Letters, Taylor & Francis Journals, vol. 11(5), pages 293-296.
    7. James Hilger & Greg Rafert & Sofia Villas-Boas, 2011. "Expert Opinion and the Demand for Experience Goods: An Experimental Approach in the Retail Wine Market," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1289-1296, November.
    8. William A. Brock & José A. Scheinkman, 1985. "Price Setting Supergames with Capacity Constraints," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(3), pages 371-382.
    9. David Besanko & Ulrich Doraszelski & Yaroslav Kryukov, 2019. "How Efficient Is Dynamic Competition? The Case of Price as Investment," American Economic Review, American Economic Association, vol. 109(9), pages 3339-3364, September.
    10. Anthony Papavasiliou & Yves Smeers & Gauthier de Maere d’Aertrycke, 2021. "Market Design Considerations for Scarcity Pricing: A Stochastic Equilibrium Framework," The Energy Journal, , vol. 42(5), pages 195-220, September.
    11. Pascal Courty, 2003. "Some Economics of Ticket Resale," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 85-97, Spring.
    12. Héla Hadj Ali & Céline Nauges, 2007. "The Pricing of Experience Goods: The Example of en primeur Wine," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(1), pages 91-103.
    13. Lennon, Conor & Shohfi, Tom, 2021. "Unbridled spirit: Illicit markets for bourbon whiskey," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 1025-1045.
    14. Karni, Edi & Levin, Dan, 1994. "Social Attributes and Strategic Equilibrium: A Restaurant Pricing Game," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 822-840, August.
    15. Christoph EICHHORN & Marco SAHM, 2010. "Ticket Underpricing And Public Support For Mega-Events," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 31, pages 37-46.
    16. Nerlove, Marc, 1995. "Hedonic price functions and the measurement of preferences: The case of Swedish wine consumers," European Economic Review, Elsevier, vol. 39(9), pages 1697-1716, December.
    17. Marco Costanigro & Jill J. McCluskey & Ron C. Mittelhammer, 2007. "Segmenting the Wine Market Based on Price: Hedonic Regression when Different Prices mean Different Products," Journal of Agricultural Economics, Wiley Blackwell, vol. 58(3), pages 454-466, September.
    18. Benjamin Lester, 2011. "Information and Prices with Capacity Constraints," American Economic Review, American Economic Association, vol. 101(4), pages 1591-1600, June.
    19. Marco Costanigro & Jill J. McCluskey & Christopher Goemans, 2010. "The Economics of Nested Names: Name Specificity, Reputations, and Price Premia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(5), pages 1339-1350.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christopher R. Gustafson & Travis J. Lybbert & Daniel A. Sumner, 2016. "Consumer sorting and hedonic valuation of wine attributes: exploiting data from a field experiment," Agricultural Economics, International Association of Agricultural Economists, vol. 47(1), pages 91-103, January.
    2. Chen, Kuan-Ju & McCluskey, Jill J., 2018. "Impacts of Expert Information on Prices for an Experience Good across Product Segments: Tasting Notes andWine Prices," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 43(3), September.
    3. Jacobo Núñez & David Martín‐Barroso & Francisco J. Velázquez, 2024. "The hedonic price model for the wine market: A systematic and comparative review of the literature," Agricultural Economics, International Association of Agricultural Economists, vol. 55(2), pages 247-264, March.
    4. Villas-Boas, Sofia B, 2020. "Reduced Form Evidence on Belief Updating Under Asymmetric Information," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt08c456vk, Department of Agricultural & Resource Economics, UC Berkeley.
    5. Catherine Haeck & Giulia Meloni & Johan Swinnen, 2019. "The Value of Terroir: A Historical Analysis of the Bordeaux and Champagne Geographical Indications," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 41(4), pages 598-619, December.
    6. repec:lic:licosd:40818 is not listed on IDEAS
    7. Dieter Pennerstorfer & Christoph Weiss & Andreas Huber, 2019. "Experts, Reputation and Umbrella Effects: Empirical Evidence from Wine Prices," Economics working papers 2019-08, Department of Economics, Johannes Kepler University Linz, Austria.
    8. Gustafson, Christopher R. & Lybbert, Travis J. & Sumner, Daniel A., 2016. "Consumer knowledge affects valuation of product attributes: Experimental results for wine," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 65(C), pages 85-94.
    9. Antonis Michis & Anna Markidou, 2013. "Determinants of retail wine prices: evidence from Cyprus," Empirical Economics, Springer, vol. 45(1), pages 267-280, August.
    10. Richard Carew & Wojciech J. Florkowski, 2010. "The Importance of Geographic Wine Appellations: Hedonic Pricing of Burgundy Wines in the British Columbia Wine Market," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 58(1), pages 93-108, March.
    11. Edward Oczkowski, 2016. "Analysing Firm-level Price Effects for Differentiated Products: The Case of Australian Wine Producers," Australian Economic Papers, Wiley Blackwell, vol. 55(1), pages 43-62, March.
    12. Pecchioli, Bruno & Moroz, David, 2023. "Do geographical appellations provide useful quality signals? The case of Scotch single malt whiskies," Economic Modelling, Elsevier, vol. 124(C).
    13. Berríos, Rodrigo & Saens, Rodrigo, 2012. "The country brand trap," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    14. Nick Vikander, 2011. "Capacity Constraints and Beliefs about Demand," Tinbergen Institute Discussion Papers 11-015/1, Tinbergen Institute.
    15. Swinnen, J. & Meloni, G. & Haeck, C., 2018. "What is the Value of Terroir? Historical Evidence from Champagne and Bordeaux," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277221, International Association of Agricultural Economists.
    16. Mert Hakan Hekimoğlu & Burak Kazaz, 2020. "Analytics for Wine Futures: Realistic Prices," Production and Operations Management, Production and Operations Management Society, vol. 29(9), pages 2096-2120, September.
    17. Ricardo Sellers†Rubio & Francisco Mas†Ruiz & Franco Sancho†Esper, 2018. "Firm reputation, advertising investment, and price premium: The role of collective brand membership in high†quality wines," Agribusiness, John Wiley & Sons, Ltd., vol. 34(2), pages 351-362, March.
    18. Amegashie, J.A., 2002. "Misery Loves Company: Social Influence and the Supply/Pricing Decision of Popular Night Clubs," Working Papers 2002-10, University of Guelph, Department of Economics and Finance.
    19. Kamal Bookwala & Caleb Gallemore & Joaquín Gómez‐Miñambres, 2022. "The influence of food recommendations: Evidence from a randomized field experiment," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1898-1910, October.
    20. Corsi, Alessandro & Strøm, Steinar, 2013. "The Price Premium for Organic Wines: Estimating a Hedonic Farm-Gate Price Equation," Journal of Wine Economics, Cambridge University Press, vol. 8(1), pages 29-48, May.
    21. Clarissa Laura Maria Spiess Bru, 2023. "Does the Tasting Note Matter? Language Categories and Their Impact on Professional Ratings and Prices," Working Papers Dissertations 105, Paderborn University, Faculty of Business Administration and Economics.

    More about this item

    Keywords

    Cult wines; Scarcity pricing;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:229:y:2025:i:c:s0167268124004876. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jebo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.