Excess Demand and Rationing: Selling to an Input

This paper develops a model that explains the persistence of excess demand for some goods. It offers that, for some goods, consumers care about who else is consuming the good. As such, their willingness to pay depends on their beliefs about the other consumers. We demonstrate that screening mechanisms that impose costs in negative correlation to an individual's (positive) externality can increase profits while appearing to generate excess demand. We feel that such a model is appropriate in that casual observation seems to indicate that it does well in predicting which goods would use such a screening mechanism and which would not.