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Dynamic Trading in a Durable Good Market with Asymmetric Information

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  • Maarten C. W. Janssen

    (Erasmus University, The Netherlands)

  • Santanu Roy

    (Florida International University, U.S.A.)

Abstract

We analyze a dynamic version of the Akerlof-Wilson "lemons" market in a competitive durable good setting. There is a fixed set of sellers with private information about the quality of their wares. The price mechanism sorts sellers of different qualities into different time periods--prices and average quality of goods traded increase over time. Goods of "all" qualities are traded in finite time. Market failure arises because of the waiting involved--particularly for sellers of better quality. The equilibrium path may exhibit intermediate breaks in trading. Copyright 2002 by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Resarch Association

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 43 (2002)
Issue (Month): 1 (February)
Pages: 257-282

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Handle: RePEc:ier:iecrev:v:43:y:2002:i:1:p:257-282

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Cited by:
  1. Ben Lester & Braz Camargo, 2011. "Trading Dynamics in Decentralized Markets with Adverse Selection," 2011 Meeting Papers 1300, Society for Economic Dynamics.
  2. F. Adriani & LG. Deidda, 2004. "Few bad apples or plenty of lemons: which makes it harder to market plums?," Working Paper CRENoS 200413, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  3. Abhinay Muthoo & Suresh Mutuswami, 2005. "Competition and Efficiency in Markets with Quality Uncertainty," Economics Discussion Papers 593, University of Essex, Department of Economics.
  4. Fuchs, William & Skrzypacz, Andrzej, 2013. "Costs and Benefits of Dynamic Trading in a Lemons Market," Research Papers 2133, Stanford University, Graduate School of Business.
  5. Kawai, Keiichi, 2011. "Dynamic Market for Lemons with Endogenous Quality Choice by the Seller," MPRA Paper 29688, University Library of Munich, Germany.
  6. Briana Chang, 2012. "Adverse Selection and Liquidity Distortion in Decentralized Markets," 2012 Meeting Papers 403, Society for Economic Dynamics.
  7. Igal Hendel & Alessandro Lizzeri & Marciano Siniscalchi, 2005. "Efficient Sorting in a Dynamic Adverse-Selection Model," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 467-497.
  8. Abhinay Muthoo & Suresh Mutuswami, 2007. "Imperfect Competition and Efficiency in Lemons Markets," Economics Discussion Papers 631, University of Essex, Department of Economics.
  9. Diego Moreno & John Wooders, 2013. "Dynamic Markets for Lemons: Performance, Liquidity, and Policy Intervention," Working Paper Series 5, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
  10. Francesc Dilme & Fei Li, 2012. "Dynamic Education Signaling with Dropout," PIER Working Paper Archive 12-023, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  11. Igal Hendel & Alessandro Lizzeri & Marciano Siniscalchi, 2000. "Efficient Sorting in a Dynamic Adverse Selection Model: The Hot Potato," Econometric Society World Congress 2000 Contributed Papers 1209, Econometric Society.
  12. Adriani, Fabrizio & Deidda, Luca, 2008. "Competition and the signaling role of prices," MPRA Paper 16108, University Library of Munich, Germany.
  13. Brendan Daley & Brett Green, 2012. "Waiting for News in the Market for Lemons," Econometrica, Econometric Society, vol. 80(4), pages 1433-1504, 07.
  14. William Greene, 2007. "Functional Form and Heterogeneity in Models for Count Data," Working Papers 07-10, New York University, Leonard N. Stern School of Business, Department of Economics.

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