Seth's Blog : Allocating scarcity

Allocating scarcity

If we’re lucky, we invent something that’s going to be in high demand. Reservations at a hot restaurant. Limited edition trading cards. Concert tickets…

How to decide who gets them?

One attractive option is “first-come-first-served.” It feels fair, after all. The theory is that people who really want what you have will spend time (waste time) in line to show their commitment. But of course, this is a tax, and an uneven one at that, since some people value their time more than others.

Another is to simply auction off the scarce items. The good news is that the value of the scarce item won’t be squandered on time wasting, but will go to the company. But this might feel unfair, as it rewards people with more assets, as so many things do. On the other hand, it’s pretty clear that people allocate resources differently than we might expect.

The third method, the fairest of all, is to have a lottery. Invite your best customers, or charge a commitment fee, and then randomly allocate the loot. The good news is that you won’t alienate customers who feel as though it’s their fault that they didn’t wait in line long enough, or spend enough.

Each decision has effects. And it’s up to the producer to decide which emotions they want to be responsible for creating.