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Costs and Benefits of Dynamic Trading in a Lemons Market

  • Fuchs, William

    (University of CA, Berkeley)

  • Skrzypacz, Andrzej

    (Stanford University)

We study a dynamic market with asymmetric information that creates the lemons problem. We compare efficiency of the market under different assumptions about the timing of trade. We identify positive and negative aspects of dynamic trading, describe the optimal market design under regularity conditions and show that continuous-time trading can be always improved upon.

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Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 2133.

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Date of creation: Aug 2013
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Handle: RePEc:ecl:stabus:2133
Contact details of provider: Postal: Stanford University, Stanford, CA 94305-5015
Phone: (650) 723-2146
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  1. Vasiliki Skreta & Thomas Philippon, 2010. "Optimal Interventions in Markets with Adverse Selection," 2010 Meeting Papers 1333, Society for Economic Dynamics.
  2. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, March.
  3. Samuelson, William F, 1984. "Bargaining under Asymmetric Information," Econometrica, Econometric Society, vol. 52(4), pages 995-1005, July.
  4. Veronica Guerrieri & Robert Shimer & Randall Wright, 2010. "Adverse Selection in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 78(6), pages 1823-1862, November.
  5. Maarten C.W. Janssen & Vladimir Karamychev, 2000. "Cycles and Multiple Equilibria in the Market for Durable Lemons," Tinbergen Institute Discussion Papers 00-025/1, Tinbergen Institute.
  6. aniko oery & Andrzej Skrzypacz & William Fuchs, 2015. "Transparency and Distressed Sales under Asymmetric Information," 2015 Meeting Papers 73, Society for Economic Dynamics.
  7. Biais, Bruno & Glosten, Larry & Spatt, Chester, 2004. "Market Microstructure: A Survey of Microfoundations, Empirical Results, and Policy Implications," IDEI Working Papers 253, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Pagnotta, Emiliano & Philippon, Thomas, 2012. "Competing on Speed," CEPR Discussion Papers 8786, C.E.P.R. Discussion Papers.
  9. Noldeke, Georg & van Damme, Eric, 1990. "Signalling in a Dynamic Labour Market," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 1-23, January.
  10. 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.
  11. Jean Tirole, 2012. "Overcoming Adverse Selection: How Public Intervention Can Restore Market Functioning," American Economic Review, American Economic Association, vol. 102(1), pages 29-59, February.
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