Efficient and Competitive Rationing
Abstract
The contracts that interest us here are called priority service contracts. The salient feature of such contracts is that they specify each customer's priority in obtaining service. That is, they specify the tank order in which a customer is served out of the available supply, until all customers are served or supply is exhausted. Such contracts essentially establish queues for customers. In Section 1 the author provides some background about priority service. Section 2 formulates a basic model and offer several illustrations. Also describes two main examples that motivate the theoretical development. Section 3 derives some key results that show how the prices of priority service contracts are designed to induce customers to self-select efficient service orders. In Section 4 the author discusses various ways that state enterprises can organize markets that implement priority service efficiently. In Section 5 we study the operation of competitive markets for priority service. Section 6 concludes with some summary remarks. Two themes are emphasized. One is that a state enterprise can promote substantial efficiency gains by substituting priority service for absent spot markets. The other is that oligopolistic firms may have insufficient incentives to offer efficient product diversity; consequently, allocative efficiency depends on entry of numerous firms. Even so, dispersal of supplies among many firms can prevent productive efficiency when there are advantages from pooling supplies.
Document Details
- Document Type
- Technical Report
- Publication Date
- May 01, 1988
- Accession Number
- ADA198448
Entities
People
- Robert Wilson
Organizations
- Stanford University