A few years ago, when I ran a business selling DVD’s, I often noticed how newer DVDs sold better than old ones. On the surface of things, there was no accounting for this. Movies made five years apart from one another are about of equal quality, provided they have not been downloaded from the internet as a compressed/converted file and then burned onto the DVD itself. Perhaps it was that people who like watching movies had already seen the five-year-old movie; if this was true, they had no reason to buy it.

This, however, does not explain the market behavior exhibited in Wal-Mart stores where there are five dollar bargain bins located here and there. I know from personal experience that there are some really good deals in there. I haven’t hesitated to buy a DVD I wanted to have and didn’t have before when I saw it in the bargain bin. That the price remains low despite the high quality of some DVDs suggests that that aggregate market behavior is to favor new things over old things. The whole of the market of people who produce, sell, and buy DVDs cannot possibly be filled with people who have seen every single five-year-old movie. This is impossible.

As a result, some other principle is at work, other than what can be attributed to the bias of human nature to prefer new products to old ones.

I continued my investigation into this pattern of behavior by looking at magic the gathering cards. By and large, when the cards first become available at what is called a pre-release (an event held one week before the product is available for sale), they are expensive. They drop in price afterward, and rise again over time as people acquire them. With collectible trading cards, the preference is not merely slanted towards new things, but things of value. A card is perceived to be valuable if it is an integral part of someone’s deck, a card would enable them to win games. A valuable card is bought up, increasing its scarcity.

The more I studied prices over time, the more I learned that pre-sale cards and valuable cards have one thing in common: they are greatly sought after by reason of their scarcity. The ideal time to speculate on brand new cards is the pre-sale weekend or the opening day of sales, when the supply of new cards is at its lowest. The product increases over time with new printings, thus lowering its value. This occurred for me some years when I had two copies of a card which was then worth fifty dollars. I liquidated those cards, and have not regretted my choice. One of those is now worth about five dollars.

An examination of other items on sale before they are available to the general public reveals the same principle. Doctor Who Season 8, which will be available in three months, sells for about seventy-two dollars. On amazon.com, close to 700 people have already reviewed the product without any knowledge of it whatsoever. In fact, people who purchase the product have no idea what it will be like since, as of this writing, only four of the thirteen episodes have aired. The only way to explain the demand for this product is to formulate a new economics principle- negative scarcity.

Ordinarily, in any market transaction, the price of any service or good is greatly influenced by how scarce it is- how difficult it is to acquire. The difficulty may lie in the trouble it takes to track down the service or good, or it may lie in the increasing effort and material it takes to be produced. This is why a car is more expensive than a bottle of water. Water itself is common enough, as are water purifiers. Companies can use recycled plastic, thus decreasing their overhead. Some water companies, such as the one I interact with in Pennsylvania, re-use their bottles so they spend less each time. A car, on the other hand, is a unique product whose parts are not easily replaced. There is, for example, the muffler, the fuel tank, the engine block, the transmission, the coolant unit, the radio, the tires, the seats, the windows, and many others. Were a car composed on four parts- such as the water bottle is composed of the water, the bottle, the cap and the label- then such a car would be far less expensive. It would cost less to build.

The principle of negative scarcity ignores this reality of economics. What may sell for five dollars five years from now will today sell for twenty dollars. People who chase new products in the market are chasing scarcity, rather than long-term value. This is why fast-food companies come out with a new menu item every month. They have to have the word “new” as part of their advertising strategy. Otherwise, they run the risk of becoming old hat, just a burger joint with nothing really unique to offer. Repeat customers have less reason to keep giving the restaurant their business if they know exactly what is on the menu and what it will taste like.

To put it another way: suppose that in the course of a month, a person has consumed seven hamburgers. The hamburger has a bun, some pickles, some ketchup and the meat. By the end of the month, the consumer is tired of hamburgers. When the fast food restaurant announces that it has a new spicy chicken sandwich, the consumer has more incentive to go and try it. He does not know what’s on the sandwich, or even what it will taste like. Scarcity, that which creates demand, has zero experiences for the chicken sandwich and seven experiences for the hamburger. The hamburger is not very scarce.

What is meant by negative scarcity is when a product is bought but not consumed. It is given to the consumer at some later date. The number of experiences for a pre-sale DVD is still zero- insofar as the DVD itself, and not its content, are concerned- but the negative comes in the form of demand put upon the producer who has yet to release the product. When the number of sales made outweigh the number of products released, the scarcity may be said to be negative. Assuming that 700 people bought the Doctor Who DVD set (which is a rather large assumption- some people probably just logged in to complain about the price) the producer has 700 orders to fill. The demand far exceeds the number of products available.

Positive scarcity is the condition the market usually operates under. An item might be scarce, but it is by no means inaccessible. It is just more difficult to acquire. It is not, as with pre-sale items, impossible to acquire. If the demand and market forces were both put on a graph, market equilibrium would lay at the center of the graph, at coordinates (0,0). Demand for a product pushes the scarcity to the left, so that it eventually becomes a point such as (-700,0). The -700 represents the number of products sold. The zero represents the number of products distributed. This is where negative scarcity exists.

If the situation is reversed and 700 products have shipped but no further demand is placed on the product, then positive scarcity exists. The coordinates would look like (0,700). A more realistic display of positive scarcity would look something like (-1100, 2300). 1100 products are sold, 2300 have been distributed. The product- let’s say a scented candle- has enough unsold items available to keep the price down. If all the items sold, or if the demand exceeded the number of products made, then negative scarcity would exist again.

The problem that exists in the market today is that businesses have figured out when they make the most money and why. They may not necessarily understand all the principles behind it. They may not even understand economics. Yet they are paying attention to their sales, what sells and when, what doesn’t sell and when. Business owners today who understand that scarcity drives prices up go out of their way to manufacture scarcity. This is the case for movie companies who try to have laws passed against internet pirating. This is the case when big companies write laws trying to eliminate all their competition. With less competition, fewer products are being produced. The end result is that a business which may have sold a scented candle for three dollars can now sell it for five dollars. Though nothing has really changed in their production methods or personnel management, they are now making more money.

The solution to this problem lies in the individual choices of people who participate in the market. It’s not a hard-and-fast law of reality that people MUST buy a product before it is released to the general. Nor is it a entirely certain that no alternatives will arise to make it cheaper for individuals to watch what they want to watch, drive what they want drive, eat what they want to eat. What is certain is that, given the depreciation of products over time (with the occasional exception), it doesn’t make too much sense for anyone to give in to their impatience and buy the product at once, immediately, the first chance they get.

After all, the pre-sale of Doctor Who Season 8 started out at eighty dollars. It’s already dropped by ten dollars. It will probably continue depreciating in value, such as Doctor Who Season 7 did. Season 7 now costs 25 dollars.

With this in mind, it seems clear that the principle of negative scarcity costs people money in the long run. Making a purchase- of any sort whatsoever- is not merely about the immediate needs of today, but about the needs of tomorrow and the day after. Given the choice between paying 70 dollars for a product now and 25 dollars for a product later, it seems clear which one ought to be preferred. The video game industry, which makes most of its money by selling brand-new games, has been in decline of recent years due to the strength of the secondary market which allows people to have the same items for less money. All that is needed is for enough time to pass.

Eventually, the video game industry will wise up and realize that with over twenty-five years worth of video games to play, there’s no compelling reason to pay sixty dollars for Call of Duty: More Military Propaganda. If people don’t want the principle of negative scarcity to create profit for businesses, all they have to do is sit and wait. Be patient, let the price drop, and the product will come. The only reason to pay more than you have to for a product is upon suspicion that such a product will greatly increase in value over time. Such a suspicion, as far as I can see, favors the exceptions, rather than the norms. The exception is for items to get more expensive with time. The norm is for items to lose their value over time.

In a consumer society, most items are overpriced when they are new. They are overpriced because businesses know that people will pay any price to have that new, bright, shining item. Perhaps if we truly understood the value of products as longitudinal investments instead of momentary emotional highs, brand new products would cost a lot less.