Shortages, Segmentation, and Self-Selection

D. G. Ferguson

Canadian Journal of Economics, 1994, vol. 27, issue 1, 183-97

Abstract: This paper considers the rationality and implications of using shortages as a self-selection device. Shortages lead to uncertain access and enable sellers to offer ensured access, either to the good or to a preferred variety of the good, at a higher price or as part of a bundle. It is shown that such activities allow firms to span nonconcavities in their revenue function. Firms respond to changes in demand and costs through changes in quantity and/or the premium for ensured access but not through changes in the base price.

Date: 1994
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