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Optimal Pricing of Public Lotteries and Comparison of Competing Mechanisms

  • David Scrogin

    ()

    (University of Central Florida, Orlando, FL)

  • Chen Ling

    ()

    (Southwestern University of Finance and Economics, Chengdu, Sichuan, China)

The negative effects of price controls on consumer surplus in competitive markets are well known. But what of consumer surplus if supply is fixed, as with rival but otherwise non-excludable goods held in public trust? This paper establishes optimal pricing rules for rationing indivisible units of such goods by lottery or mixture of a lottery and auction. The solution to the pricing problem appears in classic inverse elasticity form that may be directly implemented. Analysis of a rich class of private value distributions indicates the optimal lottery yields sizable gains in expected consumer surplus over competitive pricing and zero pricing.

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File URL: https://www.trc.bus.ucf.edu/cdn/economics/workingpapers/2012-05.pdf
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Paper provided by University of Central Florida, Department of Economics in its series Working Papers with number 2012-05.

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Length: 28 Pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:cfl:wpaper:2012-05
Contact details of provider: Postal: PO Box 161400, Orlando, FL 32816
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Web page: http://www.bus.ucf.edu/economics/

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  1. Tobin, James, 1970. "On Limiting the Domain of Inequality," Journal of Law and Economics, University of Chicago Press, vol. 13(2), pages 263-77, October.
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  10. Condorelli, Daniele, 2012. "What money canʼt buy: Efficient mechanism design with costly signals," Games and Economic Behavior, Elsevier, vol. 75(2), pages 613-624.
  11. Winston Koh & Zhenlin Yang & Lijing Zhu, 2006. "Lottery Rather than Waiting-line Auction," Social Choice and Welfare, Springer, vol. 27(2), pages 289-310, October.
  12. Shogren, Jason F. & Margolis, Michael & Koo, Cannon & List, John A., 2001. "A random nth-price auction," Journal of Economic Behavior & Organization, Elsevier, vol. 46(4), pages 409-421, December.
  13. Taylor, Grant A. & Tsui, Kevin K. K. & Zhu, Lijing, 2003. "Lottery or waiting-line auction?," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1313-1334, May.
  14. Buschena, David E. & Anderson, Terry L. & Leonard, Jerry L., 2001. "Valuing Non-Marketed Goods: The Case of Elk Permit Lotteries," Journal of Environmental Economics and Management, Elsevier, vol. 41(1), pages 33-43, January.
  15. Scrogin, David, 2005. "Lottery-rationed public access under alternative tariff arrangements: changes in quality, quantity, and expected utility," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 189-211, July.
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