This paper extends the standard competitive adverse selection model by allowing for qualitatively different information structures of agents on the informed side of the market. Using the stylized framework of the market for used cars, we examine the welfare properties of equilibria under the assumption that a fraction of the sellers remains uninformed about a parameter which is relevant for his own transaction. The analysis suggests that market performance is in general nonmonotonic in the number of uninformed sellers. The extent to which the presence of less well informed sellers improves upon a situation where all sellers are perfectly informed is shown to depend crucially on (a) the potential gains from trade in the market and (b) the average quality of the sellers' information structure.
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Paper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number
517.
Length: 19 pages Date of creation: Sep 1996 Date of revision: Handle: RePEc:bon:bonsfa:517
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Kessler, Anke S, 2001.
"Revisiting the Lemons Market,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(1), pages 25-41, February.
Find related papers by JEL classification: D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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.)
F. Adriani & LG. Deidda, 2006.
"The Monopolist’s Blues,"
Working Paper CRENoS
200611, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
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