Rationing rule, imperfect information and equilibrium

Roger Waldeck

Economic Theory, 2002, vol. 19, issue 3, 493-507

Abstract: The impact of imperfect information on the price setting behaviour of firms is analysed. Specifically, consumers support an information cost to become informed about prices. Firms are endowed with U-shaped average cost curves. If a firm does not supply more than its competitive supply as determined by its marginal cost schedule, then we show that the existence of a pure strategy equilibrium is conditional on the rationing rule employed. If uninformed consumers are served first then the monopoly price is the sole equilibrium whenever consumers' information costs are high enough. Otherwise, a pure strategy equilibrium fails to exist contrary to the results of Salop and Stiglitz (1977) or Braverman (1980) who implicitly suppose that firms supply all the demand at a given price.

Keywords: Pricing; Imperfect information; Rationing rule; Search theory; Pure strategy equilibrium. (search for similar items in EconPapers)
JEL-codes: D43 D45 D83 (search for similar items in EconPapers)
Date: 2001-12-20
Note: Received: May 17, 1999; revised version: September 15, 2000
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