Disclosing Low Product Availability: An Online Platform’s Strategy for Mitigating Stockout Risk

Ensuring product availability and successful order fulfillment are critical priorities for any retail company. In this paper, we explore how sharing information about low-availability items (LAIs) can influence customer purchase decisions both in preventing stockouts and mitigating their negative effects. The net impact of sharing information on LAIs is difficult to predict ex ante because multiple effects may act in opposite directions. On the one hand, sharing information could discourage LAI purchases from customers who are averse to stockouts. On the other hand, such information might increase the demand for LAIs because of cognitive biases that make scarce items seem more appealing. In a field experiment with more than 840,000 Instacart customers, we first find that customers are 25% less likely to purchase LAIs when item availability information is disclosed. This effect is not uniform; it is more pronounced when customers shop at new stores, when they have previously encountered lower found rates on the platform, and when they have less experience using the platform. Importantly, LAI disclosure has a positive impact on the platform’s performance in both the short and long term. Specifically, this innovative and extremely low-cost policy results in a 5.8% increase in customer spending and a 5.7% increase in order frequency over the long term. Our analysis suggests that this positive effect is driven by several factors: the improved service quality experienced by customers, as evidenced by a 3.7% reduction in refunds, a 2.9% decrease in product replacements, and a 7.5% reduction in poor product replacement ratings when replacements do occur; increased customer exploration of different stores; and higher spending per order because of fewer refunds and the exploration of potentially more expensive product substitutes. In the context of online retail, a policy of disclosing LAIs can improve customer decision-making by providing stock information, reduce stockouts, enhance satisfaction by managing expectations and transparency, and promote exploration of more platform options. This paper was accepted by Victor Martinez de Albéniz, operations management. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.01808 .