Dynamic Market for Lemons with Endogenous Quality Choice by the Seller
AbstractWe analyze a dynamic market for lemons in which the quality of the good is endogenously determined by the seller. Potential buyers sequentially submit oﬀers to one seller. The seller can make an investment that determines the quality of the item at the beginning of the game, which is unobservable to buyers. At the interim stage of the game, the information and payoﬀ structures are the same as in the market for lemons. Our main result is that the possibility of trade does not create any eﬃciency gain if (i)the common discounting is low, and (ii)the static incentive constraints preclude the mutually agreeable ex-ante contract under which the trade happens with probability one. Our result does not depend on whether the oﬀers by buyers are private or public.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 29688.
Date of creation: 2011
Date of revision:
Bargaining; delay; impasse; observability; lemons problem.;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-26 (All new papers)
- NEP-COM-2011-03-26 (Industrial Competition)
- NEP-CTA-2011-03-26 (Contract Theory & Applications)
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