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On durable goods markets with entry and adverse selection

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Author Info
Maarten Janssen
Santanu Roy

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Abstract

We investigate the nature of trading and sorting induced by the dynamic price mechanism in a competitive durable good market with adverse selection and exogenous entry of traders over time. The model is a dynamic version of Akerlof (1970). Identical cohorts of durable goods, whose quality is known only to potential sellers, enter the market over time. We show that there exists a cyclical equilibrium where all goods are traded within a finite number of periods after entry. Market failure is reflected in the length of waiting time before trade. The model also provides an explanation of market fluctuations.

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File URL: http://economics.ca/cgi/xms?jab=v37n3/03.pdf
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 37 (2004)
Issue (Month): 3 (August)
Pages: 552-589
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Handle: RePEc:cje:issued:v:37:y:2004:i:3:p:552-589

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alessandro Lizzeri, 2003. "Efficient Sorting in a Dynamic Adverse Selection Model," Theory workshop papers 505798000000000098, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Anindya Ghose, 2005. "Used Good Trade Patterns: A Cross-Country Comparison of Electronic Secondary Markets," Working Papers 05-19, NET Institute, revised Oct 2005. [Downloadable!]
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This page was last updated on 2009-11-25.

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