Welcome back, today we get into the touchy subject of manufactured scarcity. Hope that it is enjoyed.
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Artificial scarcity is scarcity of items despite the technology for production or the sufficient capacity for sharing. The most common causes are monopoly pricing structures, such as those enabled by laws that restrict competition or by high fixed costs in a particular marketplace. The inefficiency associated with artificial scarcity is formally known as a deadweight loss.
In a capitalist system, an enterprise is judged to be successful and efficient if it is profitable. To obtain maximum profits, producers may restrict production rather than ensure the maximum utilisation of resources. This strategy of restricting production by firms in order to obtain profits in a capitalist system or mixed economy is known as creating artificial scarcity.[1]
Artificial scarcity essentially describes situations where the producers or owners of a good restrict its availability to others beyond what is strictly necessary. Ideas and information are prime examples of unnecessarily scarce products given artificial scarcity
After the recent announcement from Buffalo Trace about a general tightening of bourbon supplies -- a 'shortage,' if you will -- many people chose to comment (here and elsewhere) by pointing out that the stores they shop are still well-supplied with the brands in question.While this at first blush simply seems funny -- how blinkered is your world view that you don't think something is happening unless it's happening to you? -- it suggests that many people don't understand how a whiskey shortage works.First, it's important to remember the three-tier system. By law, producers sell to distributors and distributors sell to retailers. In many states, merchandise can't flow in the other direction. Even chain retailers can't move stock from store to store to equalize availability. This can lead to one store in a market being out of a certain product, while others in the same market have plenty.To a whiskey producer such as Buffalo Trace, there is a shortage whenever they receive orders they can't fill. Sometimes this is a very short term problem. For example, there are no more finished goods in the finished goods warehouse ('finished' means bottled, cased, and ready to ship) and there is a gap in time before that particular product is scheduled for another bottling run, but there is sufficient whiskey available, so that a normal bottling can be done at the next opportunity. That's not really a shortage, although it can result in a few very limited out-of-stock situations at retail.Another situation might be that the producer's finished goods warehouse is bare and there's nothing suitable that's available to bottle -- so there's a shortage as far as the producer is concerned -- but the distributors have sufficient stock that the shortage never reaches retail. A point is reached where everything is on the shelf somewhere -- the producer and distributor stocks are depleted -- but they are able to be replenished before bare shelves appear at retail.For the consumer, a real shortage occurs when the finished goods warehouse is bare and there is no suitable whiskey available to bottle until the next batch reaches maturity. For several months, distributors and retailers are unable to replenish their stocks of that particular item, leading to multiple retail out-of-stock situations market-wide. That's the kind of shortage consumers notice, because they may have to visit several stores to find the item in question.
Posted by Chuck Cowderyat 1:26 PM