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Press Release from the Journal of Marketing: When to Use Markets, Lines, and Lotteries: Why the Fairness of These Allocation Strategies Depends on Their Ability to “Sort Preferences”

Matt Weingarden

Researchers from University of California – Los Angeles and University of Chicago published a new paper in the Journal of Marketing that examines how people’s perceptions about differences in preferences shapes their acceptance of resource allocation methods. 

The study, forthcoming in Journal of Marketing, is titled “When to Use Markets, Lines, and Lotteries: How Beliefs About Preferences Shape Beliefs About Allocation” and is authored by Franklin Shaddy and Anuj Shah. 

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The recent COVID-19 pandemic has cast into sharper relief media, governmental, and public concerns about fairness in allocation. For example, firms are often accused of price gouging when demand for certain things increases dramatically and prices follow suit. However, this new study suggests some potential nuance: Consumers might tolerate rising prices in response to demand shocks if they appreciate that doing so can sometimes help direct scarce goods and services to those who will make the best use of them—that is, help sort preferences. 

 Broadly, the researchers asked: When do markets, lines, and lotteries seem most appropriate and why? This is a critical topic for marketing theory and practice because beliefs about fairness not only pose a fundamentally psychological question for researchers, but also place significant constraints on firms.

When allocating scarce goods and services, firms often either prioritize those willing to spend the most resources (e.g., money, in the case of markets; time, in the case of lines) or they simply ignore such differences and allocate randomly (e.g., through lotteries). When is each approach deemed most fair, and why? Shaddy explains that “We found that people are more likely endorse markets and lines when these systems increase the likelihood that scarce goods and services go to those who have the strongest preferences. And this is most feasible when preferences are dissimilar … in other words, some consumers want something much more than others.” Consequently, people are naturally attuned to preference variance: When preferences for something are similar, markets and lines seem less appropriate because it is unlikely that the highest bidders or those who have waited the longest actually have the strongest preferences. However, when preferences are dissimilar, markets and lines seem more appropriate because they can more easily sort preferences. 

Thus, while there are many potential reasons why people might favor markets (e.g., they are common, they help supply meet demand) or lines (e.g., they seem egalitarian), it turns out people also care a great deal about whether these resource-based allocation rules improve distributive efficiency—allocating scarce goods and services to those who want them the most. This characterizes a novel source of market aversion that can be traced to views about the basic purpose of markets: preference sorting. And it also demonstrates how the same conditions that give rise to market aversion dampen support for lines. 

Shah explains that “When allocating scarce goods and services, a one-size-fits-all policy is a risky proposition. Beliefs about the appropriate allocation rules depend not only on what is being allocated, but also to whom. Consequently, when firms choose the option regarded as less appropriate or fair, the resulting perceptions of unfairness yield negative downstream consequences, resulting, for example, in reduced purchase intentions.” 

This basic insight could apply to other allocation rules in non-consumer contexts. For example, a primary function of admissions committees at elite universities can be viewed as “merit sorting”—allocating limited seats in each freshman class to the most qualified applicants. But merit sorting should be similarly infeasible when qualifications are too similar. This has led some experts to call for lottery admissions for applicants that meet certain academic thresholds. 

People often disagree about how to allocate things fairly. And it can sometimes seem like these disagreements stem from intractable differences in moral convictions or political philosophies (e.g., socialism versus capitalism). However, this new theory offers a more flexible view. People seem to earnestly try to discern the nature of preferences and choose an allocation rule that fits. 

Full article and author contact information available at: https://journals.sagepub.com/doi/pdf/10.1177/00222429211012107

About the Journal of Marketing 

The Journal of Marketing develops and disseminates knowledge about real-world marketing questions useful to scholars, educators, managers, policy makers, consumers, and other societal stakeholders around the world. Published by the American Marketing Association since its founding in 1936, JM has played a significant role in shaping the content and boundaries of the marketing discipline. Christine Moorman (T. Austin Finch, Sr. Professor of Business Administration at the Fuqua School of Business, Duke University) serves as the current Editor in Chief. 

About the American Marketing Association (AMA) 

As the largest chapter-based marketing association in the world, the AMA is trusted by marketing and sales professionals to help them discover what is coming next in the industry. The AMA has a community of local chapters in more than 70 cities and 350 college campuses throughout North America. The AMA is home to award-winning content, PCM® professional certification, premiere academic journals, and industry-leading training events and conferences.


 

 

Matt Weingarden, Vice President, Communities & Journals, leads the diverse team that supports the AMA’s network of community leaders from its three broad communities and four scholarly journals.