Maarten C. W. Janssen () (Department of Economics, Erasmus University Rotterdam, H7-22, Burg. Oudlaan 50,3062 PA Rotterdam, THE NETHERLANDS) Vladimir A. Karamychev () (Tinbergen Institute Rotterdam, Erasmus University Rotterdam, H16-18, Burg. Oudlaan 50,3062 PA Rotterdam, THE NETHERLANDS)
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The paper investigates the nature of market failure in a dynamic version of Akerlof (1970) where identical cohorts of a durable good enter the market over time. In the dynamic model, equilibria with qualitatively different properties emerge. Typically, in equilibria of the dynamic model, sellers with higher quality wait in order to sell and wait more than sellers of lower quality. The main result is that for any distribution of quality there exist an infinite number of cyclical equilibria where all goods are traded within a certain number of periods after entering the market.
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Article provided by Springer in its journal Economic Theory.