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Bilateral Learning Before Trading?

Author

Listed:
  • Janssen, Maarten
  • Roy, Santanu

Abstract

A buyer and a seller can privately learn the quality of an asset - initially unknown to both - by incurring a fixed cost before trading. Asset quality determines their valuations and the seller makes a take-it-or-leave-it price offer. Under a weak "lemons-like" condition, asymmetric information arises endogenously when learning costs are small; as these costs vanish, the seller learns for sure but the buyer remains uninformed with probability bounded away from zero. Nevertheless, efficient limiting equilibria always exist; the buyer earns strictly positive surplus in such an equilibrium if, and only if, she can learn after knowing the price offer.

Suggested Citation

  • Janssen, Maarten & Roy, Santanu, 2025. "Bilateral Learning Before Trading?," CEPR Discussion Papers 20786, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20786
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    File URL: https://cepr.org/publications/DP20786
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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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