An equilibrium theory of rationing

Committing to prices that result in rationing may be more profitable than s etting market-clearing prices if customers must make sunk investments to en ter the market. Rationing is ex post inefficient, but it gives more surplus to lower-value consumers who are the marginal consumers the monopolist wan ts to tempt to make investments. Similarly, a monopsonist may procure some requirements from high-cost "second sources" rather than purchase only from the lowest-cost suppliers, The model contributes to the theory of auctions with endogenous entry, and it may also help explain "efficiency wages," "s econd prizes," and "fair" behavior.