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Investing to access an adverse selection market

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  • Heinsalu, Sander

Abstract

I analyse a market with asymmetric information and interdependent values. Accessing the market is costly and stochastic, e.g. requires lobbying, licences or R&D. For a range of parameter values, interventions that raise production or entry costs for all seller types increase trade, investment and payoff for all types. This effect is driven by a novel feedback loop between the market composition and the investment in access.

Suggested Citation

  • Heinsalu, Sander, 2020. "Investing to access an adverse selection market," International Journal of Industrial Organization, Elsevier, vol. 72(C).
  • Handle: RePEc:eee:indorg:v:72:y:2020:i:c:s0167718720300837
    DOI: 10.1016/j.ijindorg.2020.102660
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    References listed on IDEAS

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    Cited by:

    1. Sarah Auster & Nenad Kos & Salvatore Piccolo, 2021. "Optimal Pricing, Private Information and Search For an Outside Offer," CRC TR 224 Discussion Paper Series crctr224_2021_151v2, University of Bonn and University of Mannheim, Germany.
    2. Sarah Auster & Nenad Kos & Salvatore Piccolo, 2021. "Optimal pricing, private information and search for an outside offer," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 758-777, December.
    3. Heinsalu, Sander, 2021. "Promotion of (interaction) abstinence increases infection prevalence," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 94-112.

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    More about this item

    Keywords

    Lemons market; Common values; Costly entry; Market composition; Asymmetric information;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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