International Journal of Business and Economics, 2002, Vol. 1, No. 2, 115-122 Rationing as a Signal Jeong-Yoo Kim * Department of Economics, University at Albany, SUNY, U.S.A. and Department of Economics, Dongguk University, South Korea Abstract Two consumers sequentially purchase at most one unit of some homogeneous good from a monopolist who knows the state of nature, either high or low. I characterize a rationing equilibrium at which the high-type monopolist produces only one unit and rations customers, whereas the low-type monopolist serves customers by producing two units. Key words: rationing; quality; signals; sequential purchases JEL classification: D45; L12; L15 1. Introduction A firm often creates excess demand and rations demand by setting a non-market clearing price. Examples are abundant. Lots of youngsters had difficulty in obtaining Harry Potter and the Goblet of Fire, the fourth volume in the Harry Pot- ter series, in the summer of 2000 because it was sold out as soon as it went on sale. The publishers, however, neither responded to that immediately by supplying more stocks nor raised the price before it was out of stock. It is well known that Nintendo induced excess demand purposely by strictly controlling the supply of game car- tridges when it introduced the Super Mario Brothers into the market in 1989. K-Paul's, a restaurant in New Orleans, is famous for long queues of customers out- side it. Recently, there have been theoretical approaches to explaining the rationing phenomenon as a result of a firm's rational behavior. A short (not exhaustive) list of articles explaining equilibrium rationing includes Kanneman, Knetsch, and Thaler (1986), Boyer and Moreaux (1988), Becker (1991), DeGraba (1995), Denicolò and Garella (1999), Gilbert and Klemperer (2000), etc. Among others, Becker (1991), in a seminal short paper along this line, assumes Received October 19, 2001, accepted March 29, 2002. * Correspondence to: Department of Economics, University at Albany, SUNY, Albany, NY 12222, U.S.A. Email: jkookim@albany.edu. I would like to thank the Editor, Thomas Roende, anonymous referees, and, in particular, Jong-Shin Wei for helpful comments and suggestions.