Welfare-Maximizing Price and Output with Stochastic Demand: Comment

Abstract

In a comment to Gardner Brown, Jr. and M. Bruce Johnson (hereafter called B-J), Michael Visscher points out that the B-J conclusions change if the rationing system changes. In the B-J approach it is assumed that available production is allocated to those with the highest consumer's surplus. Visscher analyzes two alternatives. In the first system service is offered first to those claimants with the least willingness to pay given a limited production. In the second system it is assumed that the available production is allocated randomly between all customers willing to pay the price P. The purpose of this note is primarily to point out some unnoticed implications of Visscher's two rationing systems, but also to correct a minor error in his analysis. The notation is the same as that of Visscher.

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