Artificial demand

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Artificial demand constitutes demand for something that, in the absence of exposure to the vehicle of creating demand, would not exist. It has controversial applications in microeconomics (pump and dump strategy) and advertising.[1][2]

A demand is usually seen as artificial when it increases consumer utility very inefficiently; for example, a physician prescribing unnecessary surgeries would create artificial demand.[3] Government spending with the primary purpose of providing jobs (rather than delivering any other end product) has been labelled "artificial demand".[4] Similarly Noam Chomsky has suggested that unchecked militarism is a type of government-created artificial demand, a "system of state planning ... oriented toward military production, in effect, the production of high technology waste",[5] with military Keynesianism or a powerful military industrial complex amounts to the "creation of state-guaranteed markets for high technology waste (armaments)."[6][7][8][9][10]

Vehicles[edit]

Vehicles of creating artificial demand can include mass media advertising, which can create demand for goods, services, political policies or platforms.[citation needed] Good mass media advertising can stimulate consumers' appetites and attract spending.[11] With the shortening of product lifecycles, companies in many industries spend a lot of advertising to create huge initial demand for a product before postlaunch.[12] Advertising influences demand by creating desire for a product or brand in consumers' minds.[13]

Examples[edit]

In a short squeeze, investors anticipate a fall in the share price and short the share. Meanwhile, retail investors purchase the limited supply, immediately increasing the demand which in turn sharply increases the price of the asset.[14] This lures traders who entered into the original short position to purchase addition shares, in an attempt to mitigate their loses which creates additional demand and increases the share price further.[14] Eventually, the share price will fall back to its market equilibrium price.

See also[edit]

References[edit]

  1. ^ Strange, Adario (April 15, 2015). "Why Apple Loves Gold". Mashable. Retrieved September 11, 2015.
  2. ^ Trefis Team (September 2, 2015). "Looking At The Significance Of Sirius XM's Latest $2 billion Share Repurchase Program". Forbes. Retrieved September 11, 2015.
  3. ^ MacGregor, C. C. (February 2000). "Economic Theory and Physician Behavior in Bariatric Surgery". Obesity Surgery. Springer. 10 (1): 4–6. doi:10.1381/09608920060674012. PMID 10715635. S2CID 5291713.
  4. ^ "Real Demand is Not Artificial". www.american-consensus.org. American Consensus. 2008. Retrieved 2016-07-17.
  5. ^ "ZQuote". www.zcommunications.org. 2013-03-09. Archived from the original on March 9, 2013. Retrieved 2016-07-17.
  6. ^ "Peace Magazine v03n4p33: Chomsky: Our System Depends on Arms Race". peacemagazine.org. Retrieved 2016-07-17.
  7. ^ Chomsky, Noam (1990-01-01). On Power and Ideology. Black Rose Books Ltd. p. 106. ISBN 9780921689041. Retrieved 2016-07-17.
  8. ^ Chomsky, Noam (2004-01-01). Language and Politics. AK Press. pp. 614. ISBN 9781902593821. Retrieved 2016-07-17.
  9. ^ Chomsky, Noam (2002-01-01). Pirates and Emperors, Old and New: International Terrorism in the Real World. South End Press. pp. xi. ISBN 9780896086852. Retrieved 2016-07-17.
  10. ^ Chomsky, Noam (1988-01-01). The Culture of Terrorism. Black Rose Books Ltd. p. 26. ISBN 9780921689287. Retrieved 2016-07-17.
  11. ^ Thomas Russell,(2004),"Advertising creates demand for items",Furniture Today,Vol.28 (41), p.23.
  12. ^ Reo Song ; Sungha Jang ; Gangshu (George) Cai,(2016),"Does advertising indicate product quality? Evidence from prelaunch and postlaunch advertising in the movie industry", Marketing letters,Vol.27 (4), p.791-804.
  13. ^ Christian Fisher,"Advertising's Effects on Demand",azcentral.
  14. ^ a b Lamont, Owen A. (2012-06-01). "Go Down Fighting: Short Sellers vs. Firms". The Review of Asset Pricing Studies. 2 (1): 1–30. doi:10.1093/rapstu/ras003. ISSN 2045-9920.