How Much More Would Holiday Shoppers Pay to Wear Something Rare? by Michael Blanding Economic worries will make pricing strategy even more critical this holiday season. Research by Chiara Farronato reveals the value that hip consumers see in hard-tofind products. Are companies simply making too many goods? Do you have that one friend who seems to snag the coolest, most fashionable shoes, jewelry, or clothes? Now new research shows that when luxury goods companies cater to these trendy consumers by controlling how rare certain items areseeking to make them exclusive and sought after, but not too obscurethey may sell hard-to-get products at higher prices. "There's a balance between social influencers who want to be rare and unique, and the equally important goal of fitting in with the rest of society," says Chiara Farronato, assistant professor at Harvard Business School. "Too much of a thing and it becomes a commodity, too little of a thing and it becomes something that's not even recognized when you walk down the street." Many companies, however, struggle to find the optimal balance. While Farronato's research shows that producing fewer items allows retailers to charge more for them, if companies produce too few, they also risk losing out on additional sales. Farronato's findings hit as American retailers prepare for a murky holiday shopping season. With record inflation, rising interest rates, and economic jitters weighing on consumers, pricing strategies could become more critical to getting customers to buy during the coming weeks and beyond. The rare red shoes How much more is a rare product worth to trendsetting fashionistas? And if companies focus more on these consumers, how is the broader consumer pool impacted? Farronato studies these questions in a working paper recently published by the National Bureau of Economic Research. Written along with El Hadi Caoui of the University of Toronto, John J. Horton of the Massachusetts Institute of Technology, and Robert Schultz of the University of Michigan, the paper uses the quirks of an online auction to quantify just how much social influence matters when it comes to what people will pay. The online marketplace StockX features "initial public offerings" (IPOs) of in-demand consumer products, such as shoes, handbags, and watches, in which consumers bid on items to "win" them. In early 2019, celebrity jewelry designer Ben Ballera popular figure in the hip-hop communitystaged an IPO for a new pair of outdoor slippers, or slides. The slides came in two different colors, black and red. However, the two colors were not equally available; there were far fewer red shoes than black. Farronato and her colleagues were able to use this information to compare how much more people were willing to bid on the rarer red shoes. Importantly, the shoes were also sold in a variety of sizes, with a different proportion of red to black shoes for each. By also comparing consumer bids across different sizes, they could dismiss the possibility that the red shoes were just more desirable based on their color, and focus on the premium paid for their rarity. "The way we explain this finding is through social influences," Farronato says. "I can now go around and show off an item that is recognizable to my friends, but also hard to get." Based on the case kindly answer the following question: QUESTION ONE: Explain the economical concepts mentioned within the case through graphs. (5 marks) QUESTION TWO: Discuss and clarify the underlined sentences. (5 marks) QUESTION THREE: What is (are) the possible solution (s) for the problem (s) mentioned above? Justify your answer. (5 marks) QUESTION FOUR: Clarify what you have learn from the case and how you can connect the above information to this knowledge that you have acquired in class