Scarcity in Collectibles: Artificial Scarcity vs. Natural Scarcity, What's the Difference?

January 25, 2023
Altan Insights

Common among most, if not all, collectible alternative assets of significant value is one key trait: scarcity.

What is scarcity? What does it mean for a collectible to be scarce?

When something is scarce, that means it’s deficient in quantity or number compared with the demand for the asset. Simply put, demand exceeds supply, and when we’re talking about valuable collectibles, the gap between the two is quite large. 

Scarcity lies at the root of the most basic economic principles guiding collectible market values. When there’s minimal supply of an asset relative to strong demand, the potential for high prices is strong. The assets that are everywhere (think the general release sneakers, the base sports cards, the commercially-produced art prints) have supply that satiates demand fairly well...or even overdoes it. Those values are generally tame relative to more scarce assets in each category. 

That’s why present-day collectible manufacturers aim to create scarcity - or at least the perception of scarcity - when developing and marketing products….but we’ll get to that in a bit.

What’s the difference between scarcity and rarity?

It’s chiefly the demand component that differentiates scarcity from its oft-used and oft-confused sibling, rarity. An item that is rare is seldom occurring or found. There’s nothing in the definition that describes quantity in relation to demand. 

An item can be very rare without being scarce. If there are very few of an item in existence, but demand for the item doesn’t overwhelm supply, that item is not scarce, just rare. Conversely, an item can be scarce without being rare. For example, if Nike releases a sneaker in quantities of 200,000 in the US, but demand far exceeds that supply, you’d call that sneaker scarce. It’s not rare - there are 200,000 pairs in the country, and likely hundreds of thousands more that are very close in appearance. 

The two words can very often be used interchangeably without issue, and very few will call you out for mixing them up (we won't!) - just know that there is a difference, albeit slight.

What is natural scarcity?

Some items are said to have natural or naturally-occuring scarcity. That’s the type of scarcity that develops when, often due to the passage of time, supply of an asset naturally becomes extremely limited relative to the demand for it. It doesn’t have to be due to time passage either - some resources are naturally scarce to begin with. Think precious metals or gold. Natural scarcity can also develop due to overconsumption. 

Now, the definition of natural scarcity might be a bit more flexible for collectibles than it is elsewhere. When talking about collectibles, it’s usually the passage of time that leads to an item’s scarcity. Take vintage baseball cards for example. When many vintage baseball sets debuted, while there was an element of artificial scarcity (more to come on that), the coveted cards weren’t nearly as scarce as they are now. But, over time, those cards were lost, thrown away, damaged, or otherwise compromised. Most pieces of cardboard would fail to survive over the course of decades or even a century. Their scarcity today is more naturally-occurring then. 

Or take fossils for example. There was a time when woolly mammoths wandered the earth en masse. Their tusks were not scarce then - there was no demand. Fast forward thousands of years after their extinction, and they still weren’t as scarce as they are today. Precious metals and oil miners cast the fossils they found aside, unaware of their value. Today, the number of surviving tusks in museum quality condition is scarce, not because somebody decided they should be, but because natural factors made it so over the course of epochs.

What is artificial scarcity?

We’ve established that scarcity can lead to increased values for collectible assets. Modern manufacturers of collectible items recognize this reality, and they capitalize on it. It took time to build that recognition though. For example, the sports card industry went through the “junk wax” era of overproduction; when customers realized how many of the cards were out there and how little value they held, many stopped buying entirely, crippling the industry for many years.

Today, brands across various collectible categories pursue a strategy of “artificial scarcity.” What does that mean exactly? The manufacturers release a limited quantity of highly-desired product, so that demand far exceeds supply. They’re effectively creating scarcity. In some industries, like sneakers for example, the frenzy to secure the product conveys the image that the brand is hot, trendy, and coveted, offering momentum and demand to even the non-limited product. In cards, manufacturers create “chase cards,” the low-numbered parallels  that consumers will desperately seek by buying pack-upon-pack, box-upon-box, and case-upon-case of product. 

These products are scarce solely because someone decided that it should be so. Often, the strategy works, so long as demand is maintained. To some outside of collecting spheres, the results can be astounding. A card executive decided that a black parallel of a sports card should be a 1-of-1, so that card is worth $100,000, while another piece of cardboard featuring the exact same image but without the shiny black look is worth $10. A pair of “Chicago” Jordan 1 Highs sells for $500, while a Jordan 1 Mid with a near identical colorway sells for $135 or less. 

It takes some suspension of disbelief on the consumers’ part to enable artificial scarcity to take hold in prevailing market prices. If consumers broadly decided “there’s nothing special about this card, there are actually tens of thousands just like it” or “I actually prefer a mid-top sneaker over a high-top,” these assets would be more rare than scarce. Alas, that’s not how these markets function, and it’s hard to see that changing dramatically in the near term. 


What’s the difference between natural and artificial scarcity?

At least when talking about collectibles, natural scarcity arises when organic circumstances or the passage of time create a significant supply deficit relative to demand for an asset. Artificial scarcity, on the other hand, is typically created from intentional human intervention and decision making. 

Importantly, an artificially scarce asset is often at some level of threat of its scarcity being reduced by other decision making. More of the asset could be produced, and even if there’s a preference for the original, this impacts scarcity and value, while also raising the barriers to understanding what makes the “original” scarce. If they’re not at threat of greater quantity being introduced, they might be at threat of consumers reducing demand by considering alternative, less scarce options and holding them in similar esteem. 

Generally speaking, naturally scarce assets do not face the same threats. The supply is less flexible (in reality, it should be totally inflexible), and potential substitutes are far less comparable or completely inauthentic altogether. 

Is natural scarcity better than artificial scarcity for collectors?

Not necessarily. There is perhaps a slightly lower level of risk associated with naturally scarce assets; the supply side of the equation is under less threat. Ultimately though, both types of scarcity are - to some degree - subject to the whims of the demand of the collecting public. Many artificially scarce items are currently among the most popular, particularly with younger generations. Most important is that a savvy collector understands which scarcity applies to their asset of choice and is fully aware of the risks associated with that asset. 

Enjoyed this article? Don’t forget to subscribe to our newsletter to receive more like it in your inbox weekly!

Disclaimer: You understand that by reading Altan Insights, you are not receiving financial advice. No content published here constitutes a recommendation that any particular security, transaction, or investment strategy is suitable for any specific person. You further understand that the author(s) are not advising you personally concerning the nature, potential, value or suitability of any particular security, transaction, or investment strategy. You alone are solely responsible for determining whether an investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal financial situation. Please speak with a financial advisor to understand if the risks inherent in trading are appropriate for you. Trade at your own risk.

All information provided by Altan Insights is impersonal and not tailored to the needs of any person, entity or group of persons. Past performance of an index is not an indication or guarantee of future results.

Altanin post bacgraund

Latest News