Artificial demand constitutes
demand
In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item ...
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
Pump and dump (P&D) is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. Once the operat ...
strategy) and
advertising
Advertising is the practice and techniques employed to bring attention to a product or service. Advertising aims to put a product or service in the spotlight in hopes of drawing it attention from consumers. It is typically used to promote a ...
.
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.
Government spending with the primary purpose of providing jobs (rather than delivering any other end product) has been labelled "artificial demand". Similarly
Noam Chomsky
Avram Noam Chomsky (born December 7, 1928) is an American public intellectual: a linguist, philosopher, cognitive scientist, historian, social critic, and political activist. Sometimes called "the father of modern linguistics", Chomsky i ...
has suggested that unchecked
militarism
Militarism is the belief or the desire of a government or a people that a state should maintain a strong military capability and to use it aggressively to expand national interests and/or values. It may also imply the glorification of the mili ...
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", with
military Keynesianism
Military Keynesianism is an economic policy based on the position that government should raise military spending to boost economic growth. It is a fiscal stimulus policy as advocated by John Maynard Keynes. But where Keynes advocated increasing ...
or a powerful
military industrial complex
A military, also known collectively as armed forces, is a heavily armed, highly organized force primarily intended for warfare. It is typically authorized and maintained by a sovereign state, with its members identifiable by their distinct ...
amounts to the "creation of state-guaranteed markets for high technology waste (armaments)."
Vehicles
Vehicles of creating artificial demand can include
mass media
Mass media refers to a diverse array of media technologies that reach a large audience via mass communication. The technologies through which this communication takes place include a variety of outlets.
Broadcast media transmit informati ...
advertising, which can create demand for
goods
In economics, goods are items that satisfy human wants
and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not t ...
,
services
Service may refer to:
Activities
* Administrative service, a required part of the workload of university faculty
* Civil service, the body of employees of a government
* Community service, volunteer service for the benefit of a community or a p ...
,
political policies or
platforms. Good mass media advertising can stimulate consumers' appetites and attract spending. 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. Advertising influences demand by creating desire for a product or brand in consumers' minds.
[Christian Fisher,"Advertising's Effects on Demand",azcentral.]
Examples
In a
short squeeze
In the stock market, a short squeeze is a rapid increase in the price of a stock owing primarily to an excess of short selling of a stock rather than underlying fundamentals. A short squeeze occurs when there is a lack of supply and an excess of ...
, investors anticipate a fall in the
share price
A share price is the price of a single share of a number of saleable equity shares of a company.
In layman's terms, the stock price is the highest amount someone is willing to pay for the stock, or the lowest amount that it can be bought for.
B ...
and
short the share. Meanwhile,
retail investor
There are two basic financial market participant distinctions, investor vs. speculator and institutional vs. retail. Action in financial markets by central banks is usually regarded as intervention rather than participation.
Supply side vs. ...
s purchase the limited supply, immediately increasing the demand which in turn sharply increases the price of the
asset
In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can ...
.
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.
Eventually, the share price will fall back to its
market equilibrium
In economics, economic equilibrium is a situation in which economic forces such as supply and demand are balanced and in the absence of external influences the ( equilibrium) values of economic variables will not change. For example, in the st ...
price.
See also
*
Artificial scarcity
Artificial scarcity is scarcity of items despite the technology for production or the sufficient capacity for sharing. The most common causes are monopoly pricing structures, such as those enabled by laws that restrict competition or by high fi ...
*
Cartel
A cartel is a group of independent market participants who collude with each other in order to improve their profits and dominate the market. Cartels are usually associations in the same sphere of business, and thus an alliance of rivals. Mos ...
*
De Beers
*
Economic bubble
*
Market manipulation
In economics and finance, market manipulation is a type of market abuse where there is a deliberate attempt to interfere with the free and fair operation of the market; the most blatant of cases involve creating false or misleading appearances ...
*
Overconsumption
Overconsumption describes a situation where a consumer overuses their available goods and services to where they can't, or don't want to, replenish or reuse them. In microeconomics, this may be described as the point where the marginal cost of ...
*
Planned obsolescence
In economics and industrial design, planned obsolescence (also called built-in obsolescence or premature obsolescence) is a policy of planning or designing a good (economics), product with an artificially limited Product lifetime, useful life o ...
References
{{Reflist
Advertising
Anti-corporate activism
Demand
Ethically disputed business practices
Social influence
Public employment