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The Efficiency Of Decentralized And Centralized Markets For Lemons

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  • Diego Moreno

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  • John Wooders

    ()

Abstract

In markets with adverse selection, when average quality is low and frictions are small decentralized trade produces a greater surplus than predicted by the competitive model: under decentralized trade some high-quality units of the good trade whereas, due to the “lemons problem,” only low-quality units trade in the competitive equilibrium. This suggests a reason why these markets are often decentralized. Remarkably, under some conditions payoffs are competitive as frictions vanish, even though all qualities trade.

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we014005.

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Date of creation: Jan 2001
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Handle: RePEc:cte:werepe:we014005

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  1. Bester, Helmut, 1993. "Bargaining versus Price Competition in Markets with Quality Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 278-88, March.
  2. Gale, Douglas, 1996. "Equilibria and Pareto Optima of Markets with Adverse Selection," Economic Theory, Springer, vol. 7(2), pages 207-35, February.
  3. Wooders, John, 1998. "Walrasian equilibrium in matching models," Mathematical Social Sciences, Elsevier, vol. 35(3), pages 245-259, May.
  4. Max Blouin & Roberto Serrano, 1998. "A Decentralized Market with Common Values Uncertainty: Non-Steady States," Working Papers 98-5, Brown University, Department of Economics, revised 10 Aug 1998.
  5. John Wooders & Diego Moreno, 2001. "Prices, Delay, and the Dynamics of Trade," Economics Bulletin, AccessEcon, vol. 28(7), pages A0.
  6. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  7. Douglas Gale, 2010. "Limit theorems for markets with sequential bargaining," Levine's Working Paper Archive 621, David K. Levine.
  8. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September.
  9. Max Blouin, 2001. "Equilibrium in a Decentralized Market with Adverse Selection," Cahiers de recherche CREFE / CREFE Working Papers 128, CREFE, Université du Québec à Montréal, revised Mar 2001.
  10. Bond, Eric W, 1982. "A Direct Test of the "Lemons" Model: The Market for Used Pickup Trucks," American Economic Review, American Economic Association, vol. 72(4), pages 836-40, September.
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