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An Equilibrium Theory of Rationing

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Author Info
Gilbert, Richard
Klemperer, Paul

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Abstract

Setting a price that results in rationing may be optimal for a seller whose customers must make a specific investment to be able to use his product. Although rationing results in ex post inefficiency, the resulting distribution of ex post 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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 805.

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Date of creation: Jul 1993
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Handle: RePEc:cpr:ceprdp:805

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Related research
Keywords: Rationing Sunk Costs

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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

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Rotemberg, Julio J & Summers, Lawrence H, 1990. "Inflexible Prices and Procyclical Productivity," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 851-74, November. [Downloadable!] (restricted)
  2. Margaret E. Slade, 1991. "Strategic Pricing with Customer Rationing: The Case of Primary Metals," Canadian Journal of Economics, Canadian Economics Association, vol. 24(1), pages 70-100, February. [Downloadable!] (restricted)
    Other versions:
  3. Stole, Lars A., 1994. "Information expropriation and moral hazard in optimal second-source auctions," Journal of Public Economics, Elsevier, vol. 54(3), pages 463-484, July. [Downloadable!] (restricted)
  4. Martin L. Weitzman, 1977. "Is the Price System or Rationing More Effective in Getting a Commodity to Those Who Need It Most?," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 517-524, Autumn. [Downloadable!] (restricted)
    Other versions:
  5. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June. [Downloadable!] (restricted)
  6. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  7. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November. [Downloadable!] (restricted)
  8. Png, I P L, 1991. "Most-Favored-Customer Protection versus Price Discrimination over Time," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1010-28, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kaplan, Todd & Sela, Aner, 2003. "Auctions with Private Entry Costs," CEPR Discussion Papers 4080, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Dechenaux, Emmanuel & Kovenock, Dan, 2003. "Endogenous Rationing, Price Dispersion, and Collusion in Capacity Constrained Supergames," Purdue University Economics Working Papers 1164, Purdue University, Department of Economics. [Downloadable!]
  3. Boone, J., 2003. "Optimal competition: a benchmark for competition policy," Discussion Paper 3, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  4. Klemperer, Paul, 2000. "What Really Matters in Auction Design," CEPR Discussion Papers 2581, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Binmore, Kenneth & Klemperer, Paul, 2002. "The Biggest Auction Ever: The Sale of the British 3G Telecom Licences," CEPR Discussion Papers 3214, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Ari Hyytinen & Lotta Väänänen, 2004. "Could Mr. and Mrs. Capital Market Imperfection Please Step Forward? An Empirical Analysis of Adverse Selection and Moral Hazard in Capital Markets," Discussion Papers 887, The Research Institute of the Finnish Economy. [Downloadable!]
  7. Di Maria, Corrado & Köttl, Johannes, 2002. "Lagged Network Externalities and Rationing in a Software Monopoly," Economics Series 120, Institute for Advanced Studies. [Downloadable!]
  8. Boone, J., 2002. "'Be nice, unless it pays to fight' : a new theory of price determination with implications for competition policy," Discussion Paper 23, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  9. Veronika Grimm & Giovanni Ponti & Jaromir Kovarik, 2006. "Fixed Price Plus Rationing: An Experiment," Working Papers. Serie AD 2006-26, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  10. Amegashie, J.A., 2002. "Misery Loves Company: Social Influence and the Supply/Pricing Decision of Popular Night Clubs," Working Papers 2002-10, University of Guelph, Department of Economics. [Downloadable!]
  11. Felix Oberholzer-Gee, 2003. "A Market for Time: Fairness and Efficiency in Waiting Lines," CREMA Working Paper Series 2003-04, Center for Research in Economics, Management and the Arts (CREMA). [Downloadable!]
  12. Paul Klemperer, 2000. "Why Every Economist Should Learn Some Auction Theory," Microeconomics 0004009, EconWPA. [Downloadable!]
    Other versions:
  13. James Peck, 1995. "Competition in Transactions Mechanisms: The Emergence of Price Competition," Working Papers 022, Ohio State University, Department of Economics. [Downloadable!]
    Other versions:
  14. Marco Pagnozzi, 2007. "Resale and Bundling in Auctions," CSEF Working Papers 186, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
  15. Martin K Perry & Jozsef Sakovics, 2004. "Auctions for Split-Award Contracts," ESE Discussion Papers 90, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
    Other versions:
  16. Volker Nocke & Martin Peitz, 2003. "Monopoly Pricing under Demand Uncertainty: Final Sales versus Introductory Offers," PIER Working Paper Archive 03-002, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
    Other versions:
  17. Michael J. Dueker, 2000. "Are prime rate changes asymmetric?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 33-40. [Downloadable!]
  18. Jürgen Bierbaum & Veronika Grimm, 2006. "Selling shares to retail investors: auction vs. fixed price," Review of Economic Design, Springer, vol. 10(2), pages 85-112, August. [Downloadable!] (restricted)
  19. Bourjade, Sylvain, 2003. "Strategic Price Discounting and Rationing in Uniform Price Auctions," MPRA Paper 7260, University Library of Munich, Germany, revised Oct 2007. [Downloadable!]
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