Artificial demand explained

Artificial demand or manufactured 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

Vehicles of creating artificial demand can include mass media advertising, which can create demand for goods, services, political policies or platforms. Good mass media advertising can stimulate consumers' appetites and attract spending.[11] With the shortening of product lifecycles, companies in many industries put a lot of resources into advertising to create a 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

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 losses, 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

Notes and References

  1. News: Strange . Adario . Why Apple Loves Gold . September 11, 2015 . Mashable . April 15, 2015.
  2. News: Trefis Team . Looking At The Significance Of Sirius XM's Latest $2 billion Share Repurchase Program . September 11, 2015 . Forbes . September 2, 2015.
  3. MacGregor . C. C. . February 2000 . Economic Theory and Physician Behavior in Bariatric Surgery . Obesity Surgery . Springer . 10 . 1 . 4–6 . 10.1381/09608920060674012 . 10715635 . 5291713.
  4. Web site: Real Demand is Not Artificial . 2008 . www.american-consensus.org . American Consensus . 2016-07-17 . 2016-03-03 . https://web.archive.org/web/20160303191702/http://www.american-consensus.org/resources/econ/prereq_economics.html . dead .
  5. Web site: ZQuote . 2013-03-09 . www.zcommunications.org . https://web.archive.org/web/20130309142851/http://www.zcommunications.org/if-we-hope-to-do-something-serious-to-avert-nuclear-catastrophe-we-must-be-willing-to-face-certain-a-by-noam-chomsky . March 9, 2013 . 2016-07-17.
  6. Web site: Peace Magazine v03n4p33: Chomsky: Our System Depends on Arms Race . peacemagazine.org . 2016-07-17.
  7. Book: Chomsky, Noam . On Power and Ideology . 1990-01-01 . Black Rose Books Ltd. . 9780921689041 . 106 . en . 2016-07-17.
  8. Book: Chomsky, Noam . Language and Politics . registration . 2004-01-01 . AK Press . 9781902593821 . 614 . en . 2016-07-17.
  9. Book: Chomsky, Noam . Pirates and Emperors, Old and New: International Terrorism in the Real World . registration . 2002-01-01 . South End Press . 9780896086852 . xi . en . 2016-07-17.
  10. Book: Chomsky, Noam . The Culture of Terrorism . 1988-01-01 . Black Rose Books Ltd. . 9780921689287 . 26 . en . 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. Lamont. Owen A.. 2012-06-01. Go Down Fighting: Short Sellers vs. Firms. The Review of Asset Pricing Studies. 2. 1. 1–30. 10.1093/rapstu/ras003. 2045-9920. free.

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