The value of online scarcity signals

Online retailers use scarcity cues to increase sales. Many fear that these pressure tactics are meant to manipulate behavioral biases by creating a sense of urgency. At the same time, scarcity cues could also convey valuable information. We measure the value of the scarcity messages posted by Expedia to a Bayesian rational consumer. A signal reveals information on the number of seats available at the posted price. Consumers can use this information to optimally time when they purchase a ticket. The maximum increase in expected utility for a naive consumer, who does not use publicly available information, is 8%. For a sophisticated consumer, the increase is between 4-7%. Scarcity signals have a negligible impact on seller revenue and consumption. (C) 2018 Elsevier B.V. All rights reserved.