Purchase-limits: Marketing Tools for Shortages
(A2021-94251)

AUTHORS

Jihwan Moon, University of New South Wales; Steven Shugan, University of Florida

ABSTRACT

Pandemics, natural disasters (e.g., hurricanes, droughts, and fires), strikes, piracy, civil unrest, and other events create sudden shortages by disrupting supply or spiking demand. Many stores respond with purchase-limits that restrict per transaction quantities. We consider purchase-limits in scenarios varying in store size, shortage severity, and competitive intensity. We find for moderate shortages, large stores impose purchase-limits to save inventory and increase future store traffic, but small stores do not. For severe shortages, small stores impose limits to prevent stock-outs and induce future store traffic. However, large stores do not benefit from limits. Purchase-limits can also increase consumer surplus in moderate shortages but not in severe shortages because purchase-limits cause stores to reduce prices in moderate shortages but raise prices in severe shortages. Last, competition can cause stores to impose purchase-limits only in moderate shortages.

REFERENCES

We thank the McKethan-Matherly Foundation for Funding