What is Manufactured Scarcity?
In: Economics
In the super basic model, resources or products have a supply (availability of it naturally, production capability, willingness of people to produce it, etc) and demand (how much people want it, how much is used for different purposes, and so on).
The interplay of supply and demand can result in a “price” attached to this resource. If supply is limited, and demand is high, the price to obtain it will be high. If supply is high, and demand is low, the price will be low.
Manufactured/artificial scarcity is when supply is *purposely* kept low–often through a monopoly or limitation set on how much to make available *regardless* of its ease of production or availability for higher production capability. This raises a price for a good beyond what it would shake out to be as a natural market value.
It’s a way to increase the price by real or perceived scarcity of the good. Diamonds are not that uncommon, but for about 150 years, DeBeers has tightly controlled supply to maintain the inflated price. Many luxury goods are not constrained by physical supply (i.e. there’s nothing inherently complicated or scarce about leather needed to make a Birkin bag), but by only releasing a few per year, you can command a much higher price than if you flooded the market, because buyers pay for the fact that there’s only a few of them available.
In economics, “scarcity” just refers to the fact that most things aren’t available to you in infinite supply. People would use or consume more of it, if more was available, but it’s not. In a market system, that’s why we have prices. The price rises (or falls) to a level where people either can’t or don’t want to spend more to get more. This is natural. Scarcity exists whenever something isn’t available in infinite supply and we have to have a system to decide who gets the limited quantity that exists.
“Manufactured scarcity” is different. In this case, under natural conditions or normal market conditions there would be more supply available to meet demand, but something or someone is interfering to lower the supply — usually so that they can jack up the prices and make more profit.
Suppose for instance that I own a shoe factory. People only need so many shoes, plus, there are a lot of other shoe factories. In that theoretical economic sense, shoes are still a scarce resource — there aren’t an infinite number of them — but still, I have to sell my shoes at a price that is low enough that you won’t just go buy someone else’s shoes instead.
But now suppose I get a big loan from a private investment firm and go “roll up” (buy) all the other shoe factories. And then I go to the government and get a law passed saying it’s illegal to build any new shoe factories. Now I can jack up the prices by creating an artificial shortage of shoes — deliberately not producing enough so that the shortages cause price hikes. This shortage is an artificial one; I could make more shoes if I wanted to — but I wouldn’t want to, because I’m profiting off the fact that everyone still needs shoes.
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