What I Learned at the Tower Records Going Out of Business Sale
By Bryan Caplan
Big finding as the Titanic goes down: The greater the demand for a CD at its regular price, the greater the elasticity of demand for that CD. When everything is 50% off, CDs that normally sell 1 per week may sell 3 per week. But CDs that normally sell 100 per week may sell 1000 per week.
This rule seems to work in every genre. In classical, for example, almost every Wagner disk was gone, but there was still an ample selection of Bax. In punk, every Bad Religion and Dead Kennedys disc was gone, but there were lots of obscure compilations left.
Non-economists probably won’t find this surprising, but it is. If one CD is 10 times as popular as another, you’d expect stores to stock 10 times as many copies of it. And if stores are already doing that, the fact that the popular disk still sells out more quickly is not trivial.
Does this law generalize to other markets? Is it a near-universal rule that products in higher demand at their regular price also have higher demand elasticity? Why or why not?