I finally decided to take the plunge and buy a pair of Uggs, but when I got around to shopping for my Uggs, the style that I wanted was sold out. The scarcity factor was not a glitch in the supply chain, but rather a carefully calibrated strategy by Ugg’s parent Deckers Outdoor that is one of the big reasons behind the brand’s success. Deckers tightly controls distribution to ensure that supply does not outstrip demand. If Deckers ever opened up the supply of Uggs to meet demand, sales would shoot up like a rocket, but they’d come back down just as fast.
a. Explain why Deckers intentionally restricts the quantity of Uggs that the firm sells.
b. Draw a graph to illustrate how Deckers maximizes the economic profit from Uggs.