Advanced Search
MyIDEAS: Login to save this paper or follow this series

Non-Exclusive Competition in the Market for Lemons

Contents:

Author Info

  • Andrea Attar
  • Thomas Mariotti
  • Francois Salanie

Abstract

We consider an exchange economy in which a seller can trade an endowment of a divisible good whose quality she privately knows. Buyers compete in menus of non-exclusive contracts, so that the seller may choose to trade with several buyers. In this context, we show that an equilibrium always exists and that aggregate equilibrium allocations are generically unique. Although the good offered by the seller is divisible, aggregate equilibrium allocations exhibit no fractional trades. In equilibrium, goods of relatively low quality are traded at the same price, while goods of higher quality may end up not being traded at all if the adverse selection problem is severe. This provides a novel strategic foundation for Akerlof's (1970) results, which contrasts with standard competitive screening models postulating enforceability of exclusive contracts. Latent contracts that are issued but not traded in equilibrium turn out to be an essential feature of our construction.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www2.toulouse.inra.fr/lerna/travaux/cahiers2009/09.13.289.pdf
Download Restriction: no

Bibliographic Info

Paper provided by LERNA, University of Toulouse in its series LERNA Working Papers with number 09.13.289.

as in new window
Length:
Date of creation: May 2009
Date of revision:
Handle: RePEc:ler:wpaper:09.13.289

Contact details of provider:
Postal: manufacture des Tabacs, 21 allée de brienne, 31200 Toulouse
Phone: (+33) 5 61 12 86 23
Web page: http://www.toulouse.inra.fr/lerna/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Alberto Bisin & Danilo Guaitoli, 1998. "Moral hazard and non-exclusive contracts," Economics Working Papers 345, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Samuelson, William F, 1984. "Bargaining under Asymmetric Information," Econometrica, Econometric Society, vol. 52(4), pages 995-1005, July.
  3. Pierre-André Chiappori & Bruno Jullien & Bernard Salanié & François Salanié, 2002. "Asymmetric Information in Insurance : General Testable Implications," Working Papers 2002-42, Centre de Recherche en Economie et Statistique.
  4. Hellwig, Martin F., 1988. "A note on the specification of interfirm communication in insurance markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 46(1), pages 154-163, October.
  5. David Martimort & Lars Stole, 2001. "Contractual Externalities and Common Agency Equilibria," CESifo Working Paper Series 581, CESifo Group Munich.
  6. Rochet, J. C., 1985. "The taxation principle and multi-time Hamilton-Jacobi equations," Journal of Mathematical Economics, Elsevier, vol. 14(2), pages 113-128, April.
  7. David Martimort & Lars Stole, 2001. "The Revelation and Delegation Principles in Common Agency Games," CESifo Working Paper Series 575, CESifo Group Munich.
  8. Riley, John G, 1985. "Competition with Hidden Knowledge," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 958-76, October.
  9. Kahn, C.M. & Mookherjee, D., 1996. "Competition and Incentives with Non-Exclusive Contracts," Papers 75, Boston University - Industry Studies Programme.
  10. Gwenael Piaser, 2004. "The Biais-Martimort-Rochet equilibrium with direct mechanisms," Game Theory and Information 0412007, EconWPA.
  11. Gwenaël Piaser, 2007. "Direct Mechanisms, Menus and Latent Contracts," LSF Research Working Paper Series 07-09, Luxembourg School of Finance, University of Luxembourg.
  12. Giacomo Calzolari, 2004. "Incentive Regulation of Multinational Enterprises," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 257-282, 02.
  13. Martimort, David, 1992. "Multi-Principaux avec Anti-Sélection," IDEI Working Papers 14, Institut d'Économie Industrielle (IDEI), Toulouse.
  14. Bruno Biais & David Martimort & Jean-Charles Rochet, 2000. "Competing Mechanisms in a Common Value Environment," Econometrica, Econometric Society, vol. 68(4), pages 799-838, July.
  15. Marc Rysman, 2006. "An Empirical Analysis of Payment Card Usage," Boston University - Department of Economics - Working Papers Series WP2006-002, Boston University - Department of Economics.
  16. Michael Peters, 1999. "Common Agency and the Revelation Principle," Working Papers peters-99-01, University of Toronto, Department of Economics.
  17. Peter DeMarzo & Darrell Duffie, 1999. "A Liquidity-Based Model of Security Design," Econometrica, Econometric Society, vol. 67(1), pages 65-100, January.
  18. Tomas Philipson & John Cawley, 1999. "An Empirical Examination of Information Barriers to Trade in Insurance," American Economic Review, American Economic Association, vol. 89(4), pages 827-846, September.
  19. John G. Riley, 2001. "Silver Signals: Twenty-Five Years of Screening and Signaling," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 432-478, June.
  20. Alberto Bisin & Piero Gottardi, 1998. "Competitive Equilibria with Asymmetric Information," Levine's Working Paper Archive 2062, David K. Levine.
  21. David Martimort & Lars Stole, 2009. "Market participation in delegated and intrinsic common-agency games," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 78-102.
  22. Alberto Bisin & Piero Gottardi, 2003. "Competitive Markets for Non-Exclusive Contracts with Adverse Selection: the Role of Entry Fees," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 313-338, April.
  23. Bruno Biais & Thomas Mariotti, 2003. "Strategic Liquidity Supply and Security Design," STICERD - Theoretical Economics Paper Series 445, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  24. Attar, Andrea & Chassagnon, Arnold, 2009. "On moral hazard and nonexclusive contracts," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 511-525, September.
  25. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  26. Jean-Jacques Laffont & Jérome Pouyet, 2000. "The Subsidiarity Bias in Regulation," series 0001, Dipartimento di Scienze Economiche e Metodi Matematici - Università di Bari, revised Jun 2000.
  27. Enrica Detragiache & Paolo Garella & Luigi Guiso, 2000. "Multiple versus Single Banking Relationships: Theory and Evidence," Journal of Finance, American Finance Association, vol. 55(3), pages 1133-1161, 06.
  28. Bernheim, B Douglas & Whinston, Michael D, 1986. "Common Agency," Econometrica, Econometric Society, vol. 54(4), pages 923-42, July.
  29. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
  30. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
  31. Amy Finkelstein & James Poterba, 2004. "Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K. Annuity Market," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 183-208, February.
  32. Bizer, David S & DeMarzo, Peter M, 1992. "Sequential Banking," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 41-61, February.
  33. Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 44-62, February.
  34. Piaser, Gwenaël, 2007. "Direct Mechanisms, Menus and Latent Contracts," MPRA Paper 7049, University Library of Munich, Germany.
  35. Ilya Segal & Michael D. Whinston, 2003. "Robust Predictions for Bilateral Contracting with Externalities," Econometrica, Econometric Society, vol. 71(3), pages 757-791, 05.
  36. Jaynes, Gerald David, 1978. "Equilibria in monopolistically competitive insurance markets," Journal of Economic Theory, Elsevier, vol. 19(2), pages 394-422, December.
  37. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Kosfeld, Michael & Von Siemens, Ferdinand, 2014. "Team Production in Competitive Labor Markets with Adverse Selection," CEPR Discussion Papers 9833, C.E.P.R. Discussion Papers.
  2. Sambuddha Ghosh & Seungjin Han, 2012. "Repeated Contracting in Decentralised Markets," Department of Economics Working Papers 2012-03, McMaster University, revised May 2013.
  3. Philip Bond & Yaron Leitner, 2012. "Market run-ups, market freezes, inventories, and leverage," Working Papers 12-8, Federal Reserve Bank of Philadelphia.
  4. Philip Bond & Yaron Leitner, 2013. "Market run-ups, market freezes, inventories, and leverage," Working Papers 13-14, Federal Reserve Bank of Philadelphia, revised 04 Feb 2014.
  5. Wanda Mimra & Achim Wambach, 2011. "A Game-Theoretic Foundation for the Wilson Equilibrium in Competitive Insurance Markets with Adverse Selection," CESifo Working Paper Series 3412, CESifo Group Munich.
  6. Han, Seungjin, 2011. "Implicit Collusion in Non-Exclusive Contracting under Adverse Selection," Microeconomics.ca working papers seungjin_han-2011-10, Vancouver School of Economics, revised 02 Apr 2013.
  7. Mariotti, Thomas & Salanié, François & Attar, Andrea, 2014. "Nonexclusive competition under adverse selection," Theoretical Economics, Econometric Society, vol. 9(1), January.
  8. Attar, Andrea & Campioni, Eloisa & Piaser, Gwenaël, 2013. "Two-sided communication in competing mechanism games," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 62-70.
  9. Andrea Attar & Eloisa Campioni & Gwenael Piaser, 2011. "Information Revelation in Competing Mechanism Games," CEIS Research Paper 205, Tor Vergata University, CEIS, revised 04 Jul 2011.
  10. Siegert, Caspar, 2014. "Optimal Opacity on Financial Markets," Discussion Papers in Economics 20937, University of Munich, Department of Economics.
  11. Salvatore Piccolo & Giovanni W. Puopolo & Luis Vasconcelos, 2013. "Non-Exclusive Financial Advice," CSEF Working Papers 347, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  12. Gwenaël Piaser, 2014. "Common Agency Games with Common Value Exclusion, Convexity and Existence," Working Papers 2014-420, Department of Research, Ipag Business School.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ler:wpaper:09.13.289. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maxime MARTY).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.