Few bad apples or plenty of lemons: which makes it harder to market plums?
AbstractWe analyse a competitive commodity market with a large number of buyers and sellers where - a. Individual qualities, either high or low, are not observable by buyers; b. Sellers strategically announce prices and buyers decide whether to buy having observed sellers’ actions. We find that the set of robust equilibria includes only fully separating equilibria. In any robust equilibrium the low quality is always traded. The high quality is traded if demand is sufficiently strong, so that low quality sellers are unable to satisfy all buyers, and is never traded otherwise. Hence, few rotten apples is better than a plentiful of lemons for plums’ sellers.
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Bibliographic InfoPaper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 200413.
Date of creation: 2004
Date of revision:
market for lemons; adverse selection; d1; price-setting; off-equilibrium;
Find related papers by JEL classification:
- D4 - Microeconomics - - Market Structure and Pricing
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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