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An Equilibrium Theory of Rationing

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  • Richard J. Gilbert

    (University of California Berkeley)

  • Paul Klemperer

    (Nuffield College University of Oxford)

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 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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File URL: http://128.118.178.162/eps/mic/papers/9907/9907005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 9907005.

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Length: 34 pages
Date of creation: 19 Jul 1999
Date of revision:
Handle: RePEc:wpa:wuwpmi:9907005

Note: Type of Document - Word/PDF; prepared on IBM PC - PC-TEX/UNIX Sparc TeX; to print on HP/PostScript; pages: 34 ; figures: included. We never published this piece and now we would like to reduce our mailing and xerox cost by posting it.
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Keywords: rationing sunk costs;

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References

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  1. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  2. 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.
  3. M. L. Weitzman, 1974. "Is the Price System or Rationing More Effective in Getting a Commodity to Those Who Need It Most?," Working papers 140, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
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Cited by:
  1. James Peck, 1995. "Competition in Transactions Mechanisms: The Emergence of Price Competition," Working Papers 022, Ohio State University, Department of Economics.
  2. 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.
  3. Hyytinen, Ari & Väänänen, Lotta, 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.
  4. Courty, Pascal, 2011. "Unpriced quality," Economics Letters, Elsevier, vol. 111(1), pages 13-15, April.
  5. Paul Klemperer & Ken Binmore, 2001. "The Biggest Auction Ever: the Sale of the British 3G Telecom Licences," Economics Series Working Papers 2002-W04, University of Oxford, Department of Economics.
  6. Paul Klemperer, 2000. "Why Every Economist Should Learn some Auction Theory," Economics Series Working Papers 2000-W25, University of Oxford, Department of Economics.
  7. Michael J. Dueker, 2000. "Are prime rate changes asymmetric?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 33-40.
  8. Greve,T. & Pollitt, M. G., 2012. "Designing electiricty transmission auctions: an introduction to the relevant literature," Cambridge Working Papers in Economics 1245, Faculty of Economics, University of Cambridge.

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