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Price Transparency and Market Screening

Author

Listed:
  • Ayca Kaya

    (University of Miami)

  • Santanu Roy

    (Southern Methodist University)

Abstract

We consider repeated trading by sellers with persistent private information in dynamic lemons markets. We compare the outcomes of a transparent market where past trading prices are public to those of an opaque market, where they are private. We characterize the upper bound of trading surplus in an opaque market and construct a class of equilibria in a transparent market that improves upon this bound. We conclude that price transparency is beneficial in a repeated trading environment. The advantage of price transparency is indirect and operates through the strategic tools it provides the sellers of high quality to sustain high payoffs.

Suggested Citation

  • Ayca Kaya & Santanu Roy, 2020. "Price Transparency and Market Screening," Departmental Working Papers 2008, Southern Methodist University, Department of Economics.
  • Handle: RePEc:smu:ecowpa:2008
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    File URL: ftp://ftp1.economics.smu.edu/WorkingPapers/2020/ROY/ROY-2020-07.pdf
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    More about this item

    Keywords

    Repeated sales; adverse selection; lemons market; price transparency.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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