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Cycles and Multiple Equilibria in the Market for Durable Lemons

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  • Vladimir A. Karamychev

    (Tinbergen Institute)

Abstract

We investigate 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. Among other things, we show for any distribution of quality that 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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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0876.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0876

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  1. Wilson, Charles A, 1979. "Equilibrium and Adverse Selection," American Economic Review, American Economic Association, American Economic Association, vol. 69(2), pages 313-17, May.
  2. Justin P. Johnson & Michael Waldman, 2010. "Leasing, Lemons, and Moral Hazard," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 53(2), pages 307-328, 05.
  3. Vincent, Daniel R, 1990. "Dynamic Auctions," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(1), pages 49-61, January.
  4. Alessandro Lizzeri & Igal Hendel, 1999. "Adverse Selection in Durable Goods Markets," American Economic Review, American Economic Association, American Economic Association, vol. 89(5), pages 1097-1115, December.
  5. Sobel, Joel, 1991. "Durable Goods Monopoly with Entry of New Consumers," Econometrica, Econometric Society, Econometric Society, vol. 59(5), pages 1455-85, September.
  6. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(3), pages 488-500, August.
  7. Vettas, Nikolaos, 1997. "On the Informational Role of Quantities: Durable Goods and Consumers' Word-of-Mouth Communication," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(4), pages 915-44, November.
  8. Taylor, Curtis R, 1999. "Time-on-the-Market as a Sign of Quality," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(3), pages 555-78, July.
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Cited by:
  1. Maarten C.W. Janssen & Vladimir Karamychev, 2000. "Continuous Time Trading in Markets with Adverse Selection," Tinbergen Institute Discussion Papers 00-109/1, Tinbergen Institute.
  2. Ennio Bilancini & Leonardo Boncinelli, 2014. "Dynamic Adverse Selection and the Supply Size," Center for Economic Research (RECent), University of Modena and Reggio E., Dept. of Economics 099, University of Modena and Reggio E., Dept. of Economics.
  3. Andrikopoulos, Athanasios & Markellos, Raphael. N, 2012. "Dynamic interaction between markets for leasing and selling automobiles," MPRA Paper 45225, University Library of Munich, Germany.
  4. Fuchs, William & Skrzypacz, Andrzej, 2013. "Costs and Benefits of Dynamic Trading in a Lemons Market," Research Papers, Stanford University, Graduate School of Business 2133, Stanford University, Graduate School of Business.
  5. Anindya Ghose, 2005. "Used Good Trade Patterns: A Cross-Country Comparison of Electronic Secondary Markets," Working Papers, NET Institute 05-19, NET Institute, revised Oct 2005.

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