Few bad apples or plenty of lemons: which makes it harder to market plums?
We analyse a competitive commodity market with a large number of buyers and sellers where - a. Individual qualities, either high or low, are not observable by buyers; b. Sellers strategically announce prices and buyers decide whether to buy having observed sellers' actions. We find that the set of robust equilibria includes only fully separating equilibria. In any robust equilibrium the low quality is always traded. The high quality is traded if demand is sufficiently strong, so that low quality sellers are unable to satisfy all buyers, and is never traded otherwise. Hence, few rotten apples is better than a plentiful of lemons for plums' sellers.
|Date of creation:||2004|
|Contact details of provider:|| Postal: Via S. Giorgio 12, I-09124 Cagliari|
Web page: http://www.crenos.unica.it/
More information through EDIRC
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.:
- 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.
- Grossman, Sanford J. & Perry, Motty, 1986. "Perfect sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 39(1), pages 97-119, June.
- Grossman, Sanford J & Stiglitz, Joseph E, 1980.
"On the Impossibility of Informationally Efficient Markets,"
American Economic Review,
American Economic Association, vol. 70(3), pages 393-408, June.
- Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
- Grossman, Sanford J & Stiglitz, Joseph E, 1976. "Information and Competitive Price Systems," American Economic Review, American Economic Association, vol. 66(2), pages 246-253, May.
- Laffont, Jean-Jacques & Maskin, Eric, 1987. "Monopoly with asymmetric information about quality : Behavior and regulation," European Economic Review, Elsevier, vol. 31(1-2), pages 483-489.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 179-221.
- Banks, Jeffrey S & Sobel, Joel, 1987. "Equilibrium Selection in Signaling Games," Econometrica, Econometric Society, vol. 55(3), pages 647-661, May.
- Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, vol. 50(2), pages 381-413, April.
- George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
When requesting a correction, please mention this item's handle: RePEc:cns:cnscwp:200413. 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: (Antonello Pau)
If references are entirely missing, you can add them using this form.