Imperfect Competition and Efficiency in Lemons Markets
AbstractThis paper studies the impact of competition on the degree of inefficiency in lemons markets. More precisely, we characterize the second-best mechanism (i.e., the optimal mechanism with private information) in a stylized lemons market with finite numbers of buyers and sellers. We then study the relationship between the degree of efficiency of the second-best mechanism and market competitiveness. The relationship between the first-best and second-best mechanisms is also explored. JEL Classification: C7 ; D4 ; D61 ; D82
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Bibliographic InfoPaper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 939.
Date of creation: 2010
Date of revision:
Other versions of this item:
- Abhinay Muthoo & Suresh Mutuswami, 2011. "Imperfect Competition and Efficiency in Lemons Markets," Economic Journal, Royal Economic Society, vol. 121(552), pages 580-594, 05.
- Abhinay Muthoo & Suresh Mutuswami, 2007. "Imperfect Competition and Efficiency in Lemons Markets," Economics Discussion Papers 631, University of Essex, Department of Economics.
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D4 - Microeconomics - - Market Structure and Pricing
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-28 (All new papers)
- NEP-COM-2010-08-28 (Industrial Competition)
- NEP-CTA-2010-08-28 (Contract Theory & Applications)
- NEP-GTH-2010-08-28 (Game Theory)
- NEP-IND-2010-08-28 (Industrial Organization)
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.:
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- Thomas A. Gresik & Mark A. Satterthwaite, 1985.
"The Rate At Which a Simple Market Becomes Efficient as the Number of Traders Increases: An Asymptotic Result for Optimal Trading Mechanisms,"
708, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Thomas A. Gresik & Mark A. Satterthwaite, 1985. "The Rate at Which a Simple Market Becomes Efficient as the Number of Traders Increases: An Asymptotic Result for Optimal Trading Mechanisms," Discussion Papers 641, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Maarten C. W. Janssen & José Luis Moraga-González, 2004. "Strategic Pricing, Consumer Search and the Number of Firms," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 1089-1118, October.
- Evans, Robert, 1989. "Sequential Bargaining with Correlated Values," Review of Economic Studies, Wiley Blackwell, vol. 56(4), pages 499-510, October.
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