surplus compensates consumers for their transaction-specific costs, while allowing the seller to earn higher profits than with market-clearing prices. Committing to a single price, and rationing if there is excess demand, can be more profitable than setting state-contingent prices that always clear the market. Variants of our basic model provide insights into overbooking practices by the airline industry, declining price paths combined with rationing to favour loyal customers, discriminatory pricing arrangements, second-sourcing, and sticky wages.
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Keywords: Rationing Sunk Costs Other versions of this item:
Find related papers by JEL classification:
D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
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