An Equilibrium Theory of Rationing
AbstractSetting a price that results in rationing may be optimal for a seller whose customers must make a specific investment to be able to use its product. Rationing results in ex-post inefficiency, but the resulting distribution of ex-post surplus can compensate consumers for their transaction-specific investments at a lower cost to the seller's profits than would market-clearing prices. Similarly, it may be optimal for a purchaser to procure some of its requirements from a high-cost "second source" rather than purchase only from the lowest-cost supplier.
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Bibliographic InfoPaper provided by EconWPA in its series Microeconomics with number 9907005.
Length: 34 pages
Date of creation: 19 Jul 1999
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rationing sunk costs;
Other versions of this item:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-02-14 (All new papers)
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