Price discrimination and rationing of low price customers can often be observed (viz. flight and theater tickets, sales of branded goods). We construct a monopoly model to explain this phenomenon. A firm has the option to charge a high price on a 'day 1', and a low price on a 'day 2', and ration customers stochastically on day 2. We give neccessary and sufficient conditions for 'price discrimination by rationing' to be optimal, assuming that the firm can commit itself to its day 2 actions. Without commitment a problem of subgame perfection arises. However, the price discriminatory, one period, commitment outcome is supported by (reputation) equilibria of a repeated version of the 'game'.
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
91-19.
Length: 30 pages Date of creation: Dec 1991 Date of revision: Handle: RePEc:kud:kuiedp:9119
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