Rationing-Based Price Discrimination

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.