An Equilibrium Theory of Rationing

Oxford University, Department of Economics Working Paper No. 1998(1997-W17)

21 Pages Posted: 3 Sep 1999

See all articles by Paul Klemperer

Paul Klemperer

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Richard Gilbert

University of California, Berkeley - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 1998

Abstract

Committing to prices that result in rationing may be more profitable than setting market-clearing prices if customers must make sunk investments to enter the market. Rationing is ex post inefficient, but it gives more surplus to lower-value customers who are the marginal consumers the monopolists want to tempt to make investments. Similarly, a monopsonist may procure some requirements from high-cost "second sources" rather than purchase only from the lowest-cost suppliers. The model contributes to the theory of auctions with endogenous entry, and it may also help explain "efficiency wages", "second prizes", and "fair" behavior.

JEL Classification: D45, L10, L14

Suggested Citation

Klemperer, Paul and Gilbert, Richard J., An Equilibrium Theory of Rationing (August 1998). Oxford University, Department of Economics Working Paper No. 1998(1997-W17). Available at SSRN: https://ssrn.com/abstract=172651 or http://dx.doi.org/10.2139/ssrn.172651

Paul Klemperer (Contact Author)

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
+44 1865 278 588 (Phone)
+44 1865 278 557 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Richard J. Gilbert

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

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