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Rationing-Based Price Discrimination

Ruhai Wu (), Xianjun Geng () and Andrew B. Whinston ()
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Ruhai Wu: Department of Economics, College of Business, Florida Atlantic University
Xianjun Geng: Department of Information Systems and Operations Management, University of Washington Business School
Andrew B. Whinston: Department of Information, Risk, and Operations Management, McCombs School of Business, University of Texas, Austin

No 6010, Working Papers from Department of Economics, College of Business, Florida Atlantic University

Abstract: This paper provides a theory of rationing where rationing functions as an effective mechanism for second degree price discrimination by a monopoly seller. When a seller charges multiple prices on homogenous products to all consumers, supply at the lowest price is limited and rationed among consumers. The supply shortage differentiates products sold at the lowest price and those sold at a higher price. When high-valuation consumers identify themselves at the higher price, the seller may extract more consumer surplus and increase his profit. In the paper, we address two common rationing-based price discrimination strategies, multiple-price menu and premium advance selling.. We also show that rationing-based price discrimination can be combined with other classical price discrimination strategies to further increase the seller’s profit.

Keywords: rationing; price discrimination (search for similar items in EconPapers)
JEL-codes: D42 L12 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2006-12
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
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