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An Equilibrium Theory of Rationing

By Richard J. Gilbert and Paul Klemperer

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 its product. Rationing results in ex-post inefficiency, but the resulting distribution of ex-post surplus can compensate consumers for their transaction-specific investments at a lower cost to the seller's profits than would market-clearing prices. Similarly, it may be optimal for a purchaser to procure some of its requirements from a high-cost "second source" rather than purchase only from the lowest-cost supplier.rationing sunk costs

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