Citation

Discussion Paper Details

Please find the details for DP805 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: An Equilibrium Theory of Rationing

Author(s): Richard Gilbert and Paul Klemperer

Publication Date: July 1993

Keyword(s): Rationing and Sunk Costs

Programme Area(s): Applied Macroeconomics

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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=805

Bibliographic Reference

Gilbert, R and Klemperer, P. 1993. 'An Equilibrium Theory of Rationing'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=805