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Seller experimentation and trade

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  • Peter Wagner

    (University of York)

Abstract

This paper studies the effect of trade opportunities on a seller’s incentive to acquire information through experimentation. I characterize the unique equilibrium outcome and discuss the effects of variations in the information structure on the probability of trade. The main result is that more accurate information for the buyer can reduce social welfare. Efficiency requires that the buyer offers a price that the seller always accepts and that the seller experiments when it is socially optimal to do so. When the buyer receives very informative signals about positive experimentation outcomes, the absence of such a signal can induce the buyer to purchase the good only with low but known quality at a low price. If the buyer receives an informative signal about negative experimentation outcomes, the seller might prefer to not experiment so as to avoid the risk of generating a negative outcome that could trigger the buyer to reduce her offer.

Suggested Citation

  • Peter Wagner, 2023. "Seller experimentation and trade," Review of Economic Design, Springer;Society for Economic Design, vol. 27(2), pages 337-357, June.
    • Handle: RePEc:spr:reecde:v:27:y:2023:i:2:d:10.1007_s10058-022-00294-7
    DOI: 10.1007/s10058-022-00294-7
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    References listed on IDEAS

    as
    1. Maarten C. W. Janssen & Santanu Roy, 2002. "Dynamic Trading in a Durable Good Market with Asymmetric Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 257-282, February.
    2. Kim, Kyungmin, 2017. "Information about sellers' past behavior in the market for lemons," Journal of Economic Theory, Elsevier, vol. 169(C), pages 365-399.
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    4. Levin, Jonathan, 2001. "Information and the Market for Lemons," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 657-666, Winter.
    5. Johannes Hörner & Nicolas Vieille, 2009. "Public vs. Private Offers in the Market for Lemons," Econometrica, Econometric Society, vol. 77(1), pages 29-69, January.
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    10. Ayça Kaya & Kyungmin Kim, 2018. "Trading Dynamics with Private Buyer Signals in the Market for Lemons," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(4), pages 2318-2352.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Experimentation; Learning; Trade; Adverse selection; Market for lemons;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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