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Rationing-Based Price Discrimination

Author

Listed:
  • 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)

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.

Suggested Citation

  • Ruhai Wu & Xianjun Geng & Andrew B. Whinston, 2006. "Rationing-Based Price Discrimination," Working Papers 06010, Department of Economics, College of Business, Florida Atlantic University.
    • Handle: RePEc:fal:wpaper:06010
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    File URL: http://home.fau.edu:8080/rwu1/web/Rationing%20Based%20Price%20Discrimination.pdf
    File Function: First version, 2006
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    More about this item

    Keywords

    rationing; price discrimination;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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