Competitive Nonlinear Pricing under Adverse Selection

This article surveys recent attempts at characterizing competitive allocations under adverse selection when each informed agent can privately trade with several uninformed parties: that is, trade is nonexclusive. We first show that requiring market outcomes to be robust to entry selects a unique candidate allocation, which involves cross subsidies. We then study how to implement this allocation as the equilibrium outcome of a game in which the uninformed parties, acting as principals, compete by making offers to the informed agents. We show that equilibria typically fail to exist in competitive-screening games, in which these offers are simultaneous. We finally explore alternative extensive forms, and show that the candidate allocation can be implemented through a discriminatory ascending auction. These results yield sharp predictions for competitive nonexclusive markets.