An Equilibrium Theory of Rationing

Richard Gilbert and Paul Klemperer

No 805, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 his product. Although rationing results in ex post inefficiency, the resulting distribution of ex post surplus compensates consumers for their transaction-specific costs, while allowing the seller to earn higher profits than with market-clearing prices. Committing to a single price, and rationing if there is excess demand, can be more profitable than setting state-contingent prices that always clear the market. Variants of our basic model provide insights into overbooking practices by the airline industry, declining price paths combined with rationing to favour loyal customers, discriminatory pricing arrangements, second-sourcing, and sticky wages.

Keywords: Rationing; Sunk Costs (search for similar items in EconPapers)
JEL-codes: D45 L10 L14 (search for similar items in EconPapers)
Date: 1993-07
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: An Equilibrium Theory of Rationing (2022)
Journal Article: An Equilibrium Theory of Rationing (2000)
Working Paper: An Equilibrium Theory of Rationing (1999)
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