An Equilibrium Theory of Rationing

Posted: 6 May 2000

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

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: L11

Suggested Citation

Klemperer, Paul and Gilbert, Richard J., An Equilibrium Theory of Rationing. RAND Journal of Economics, Vol. 31, No. 1. Available at SSRN: https://ssrn.com/abstract=203376

Paul Klemperer (Contact Author)

University of Oxford - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
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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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