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Quantity rationing is often observed to occur in actual markets where quality is difficult to observe. Standard theory suggests such markets must be in disequilibrium, since firms could increase profits by raising price. This paper develops a model in which consumers learn about firm quality from noisy observations of output quality.
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A theory of rationality is a theory that evaluates instances of reasoning as rational, irrational, or (ir)rational to some degree. Theories can be categorized as rule‐based or consequentialist. Rule‐based theories say that rational reasoning accords with certain rules (e.g., of logic or probability).
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