Axel Stock

Who they are

This page records the public professional record only. Nothing adverse is recorded and no motive is attributed.

The affiliation is the one the paper's record gives, and his wider career was not surveyed for this page. The paper is the single piece of his work used on this site, in the article Why Luxury Brands Hold Their Prices, where it stands for rationing as the alternative to the markdown.

Key papers

• Stock, A., & Balachander, S. (2005). 'The Making of a “Hot Product”: A Signaling Explanation of Marketers' Scarcity Strategy.' Management Science, 51(8), 1181-1192. doi:10.1287/mnsc.1050.0381

Key ideas

The authors used a game-theoretic model to ask whether scarcity strategies, making a product hard to get so that it becomes a hot product, can be optimal. They found a high-quality seller may make its product scarce to credibly signal quality to uninformed customers.

The signal works most often when the marginal cost difference between high and low-quality products is small, when the reservation price for a low-quality product is low, when reservation prices for a high-quality product vary widely, and when the number of informed consumers is moderate. The authors suggest this explains why scarcity is common for discretionary or specialty products and rare for commodity, staple or new-to-the-world products.

It is a model and reports no data. The concept page Scarcity as a Quality Signal carries the detail.

What the work is for

Stock and Balachander's paper belongs to a literature that asks why sellers do things that look commercially odd. A seller that limits supply gives up sales it could have made. The paper asks when that can be a sensible choice, and answers with a signalling model: a seller that knows its product is good, speaking to customers who cannot tell, may use scarcity as a message that a weaker seller would find harder to send.

Stock is the first author, and the page for his co-author, Subramanian Balachander, covers the same paper from the other side. The record here is one paper, and the page claims nothing about the rest of his career.

How the paper is used on this site

The article Why Luxury Brands Hold Their Prices uses the paper to show that holding a luxury price is not the only way to protect exclusivity. A house can ration. The model contains no price cuts, so it is neither an argument for markdowns nor against them, and the article is careful to say so.

It sits in the article beside the 2020 model of markdowns in seasonal conspicuous goods. One model has a seller restrict supply and say nothing about price. The other has a seller restrict supply and mark down later. Setting them side by side shows that the case for holding prices is not one theory with one conclusion.

What the paper does not show

The paper reports no data, so nothing in it says that consumers read scarcity as quality in any particular market. Its conditions are the authors' own limits on when the effect should appear, and they are narrow: a small cost gap between high and low quality, a low reservation price for a low-quality product, wide variation in reservation prices for a high-quality one and a moderate number of informed consumers.

It also does not tell a seller what to do with unsold stock. The article closes on that gap with the example of Burberry's reported cost of destroyed finished goods, and notes that the figure is a cost of goods and not a measure of what markdowns would have cost the brand.

How it was read

The paper was read here at the level of its published abstract. Its proofs, its extensions and any discussion of competition were not seen, and the page records only what the abstract and the citation state.

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