Buying Frenzies and Seller-Induced Excess Demand
AbstractI explain why a monopolist would knowingly create excess demand. Suppose customers initially do not know their valuation for a good but over time become informed. Although customers prefer purchasing after becoming informed, a monopolist prefers selling to customers while uninformed, because a group of uninformed customers has a more homogeneous (expected) valuation for the good than do informed customers. Selling fewer units than the number of customers induces customers to purchase while uninformed, because anyone waiting to purchase until becoming informed finds no units available. This "buying frenzy" behavior allows the monopolist to set price above the "informed" market-clearing price.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 26 (1995)
Issue (Month): 2 (Summer)
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- Marc Möller & Makoto Watanabe, . "Competition in the Presence of Individual Demand Uncertainty," Tinbergen Institute Discussion Papers 13-185/V, Tinbergen Institute.
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Game Theory and Information
- 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.
- Pascal Courty, 2005. "Buying Frenzies," Economics Working Papers ECO2005/27, European University Institute.
- Marc Möller & Makoto Watanabe, 2013. "Competition in the Presence of Individual Demand Uncertainty," CESifo Working Paper Series 4490, CESifo Group Munich.
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