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Why Do Firms Contrive Shortages? The Economics of Intentional Mispricing

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  • Haddock, David D
  • McChesney, Fred S
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    Abstract

    Given buyers' product-specific information capital, firms may increase long-run profits by underpricing (rationing) rather than clearing markets when demands or costs rise transitorily. To minimize resulting shortages' costs, sellers predictably would distinguish among customer groups, managing any queues of disappointed loyal buyers that materialized (but largely ignoring transitory buyer queues), and would discourage resale. Unlike other shortage models, short-run excess demand necessarily implies neither buyers who prefer consuming in groups nor waiting costs that are negligible. Any sense of unfair price increases would arise endogenously from sellers' failures to value appropriately customers' otherwise prudent informational investments. Copyright 1994 by Oxford University Press.

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    Bibliographic Info

    Article provided by Western Economic Association International in its journal Economic Inquiry.

    Volume (Year): 32 (1994)
    Issue (Month): 4 (October)
    Pages: 562-81

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    Handle: RePEc:oup:ecinqu:v:32:y:1994:i:4:p:562-81

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    Cited by:
    1. Daniel Levy & Haipeng Allan Chen & Sourav Ray & Mark Bergen, 2004. "Asymmetric Price Adjustment "in the Small:" An Implication of Rational Inattention," Macroeconomics 0407012, EconWPA, revised 11 May 2005.
    2. Tabarrok, Alexander, 2008. "The hot-toy problem," Journal of Economic Behavior & Organization, Elsevier, vol. 67(2), pages 512-516, August.
    3. Henk Folmer & Auke Leen, 2013. "Why do successful restaurants not raise their prices?," Letters in Spatial and Resource Sciences, Springer, vol. 6(2), pages 81-90, July.
    4. Mark Zbaracki & Mark Bergen & Shantanu Dutta & Daniel Levy & Mark Ritson, 2005. "Beyond the Cost of Price Adjustment: Investments in Pricing Capital," Macroeconomics 0505013, EconWPA.
    5. Julio J. Rotemberg, 2004. "Fair Pricing," NBER Working Papers 10915, National Bureau of Economic Research, Inc.
    6. Dutta, Shantanu & Bergen, Mark & Levy, Daniel, 2002. "Price flexibility in channels of distribution: Evidence from scanner data," Journal of Economic Dynamics and Control, Elsevier, vol. 26(11), pages 1845-1900, September.

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