Efficient and Competitive Rationing

Abstract

Priority service rations available supplies according to contracts that specify each customer's priority or rank order. If customers' preferences are stable, this alternative market form can achieve most of the efficiency gains attributed to spot markets, which in some industries are expensive to organize. Rationing by priorities is prominent in capital-intensive industries with nonstorable outputs, as well as in service-sector and make-to-order industries where service is queued or congested. This paper describes the role of priority service and suggests a basic model. The main topic is efficient implementation by public enterprises and by competitive firms. Copyright 1989 by The Econometric Society.

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