Scarcity Premium Self-Destruction

When a product becomes scarce in the short term, its price rises and suppliers capture excess profits. However, the high price itself triggers demand suppression, accelerates the development of substitutes, and spurs capacity investments—ultimately eliminating the scarcity and collapsing the premium. Suppliers face a fundamental trade-off between harvesting the premium now and sustaining long-term demand; these two objectives are usually mutually exclusive.

Read the daily articles behind this idea on the Chinese edition.