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Nonprice Rationing and Monopoly Price Structures when Demand is Stochastic

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  • Roger Sherman
  • Michael Visscher

Abstract

When demand is stochastic, a monopoly offering several product varieties, each at a preannounced price, can profitably discriminate in price if nonprice rationing mechanisms, such as queuing or reservations, can determine the order in which consumers are served. But in such circumstances the optimal price structure and, in turn, profit, depend on the particular ordering of consumers; the monopolist will prefer a rationing mechanism that gives priority to consumers with the lowest willingness to pay, because it allows profitable discrimination.

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  • Roger Sherman & Michael Visscher, 1982. "Nonprice Rationing and Monopoly Price Structures when Demand is Stochastic," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 254-262, Spring.
    • Handle: RePEc:rje:bellje:v:13:y:1982:i:spring:p:254-262
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    Cited by:

    1. Evan L. Porteus & Hyoduk Shin & Tunay I. Tunca, 2010. "Feasting on Leftovers: Strategic Use of Shortages in Price Competition Among Differentiated Products," Manufacturing & Service Operations Management, INFORMS, vol. 12(1), pages 140-161, November.
    2. Agostini, Claudio & Saavedra, Eduardo H., 2013. "Chile: Port congestion and efficient rationing in cargo transfer operations," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.

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