Subramanian Balachander

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.

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 model asks when making a product scarce can be an optimal strategy. A high-quality seller may restrict supply to signal quality to customers who cannot judge it, most often when the marginal cost difference between high and low-quality products is small, the reservation price for a low-quality product is low, reservation prices for a high-quality product vary widely, and the number of informed consumers is moderate.

The concept page Scarcity as a Quality Signal carries the detail. The paper is a model and reports no data, and it was read here at the level of its published abstract.

What the work is for

Balachander is the second author of the 2005 signalling model of scarcity strategy. The paper asks whether making a product hard to get, so that it becomes a hot product, can be an optimal choice for a seller. It answers within a game-theoretic model in which customers cannot judge quality before they buy.

The page for his co-author, Axel Stock, covers the same paper from the first author's side. This page follows the same rule: the paper is the only work of his used on this site, and nothing beyond it is claimed.

How the paper is used on this site

The article Why Luxury Brands Hold Their Prices uses the model to show that exclusivity can be kept by rationing, which is a different instrument from a high and fixed price. The model has no price cuts in it. It is therefore neutral on the markdown question, and that neutrality is the reason it is useful: it shows a house has at least two tools for staying exclusive.

The article sets it beside a 2020 model in which a luxury retailer rations first and marks down later. Read together, the two models show that the theory behind luxury pricing does not say "never."

The conditions the authors state

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

A reader can hold a real market against the list. A house with a specialty product and buyers who differ a great deal in what they will pay meets some of the conditions on its face. Whether it meets the others is a question about that house, and the paper cannot answer it.

What the paper does not show

Nothing adverse is recorded about him, and no motive is attributed to the authors. The paper reports no data, and its result is a property of a model. It does not say consumers read scarcity as quality everywhere, and it says nothing about stock that remains unsold. The paper was read here at the level of its published abstract. Its proofs, its extensions and its treatment of competition were not seen, and the page records only what the abstract and the citation state.

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