IDEAS home Printed from https://ideas.repec.org/p/ulp/sbbeta/2007-10.html
   My bibliography  Save this paper

Best-reply matching in Akerlof’s market for lemons

Author

Listed:
  • Gisèle Umbhauer

Abstract

The paper studies Akerlof's market for lemons in a new way. We firstly construct mixed Perfect Bayesian Nash equilibria in which all qualities are sold on the market even if the seller's strategy set is reduced to prices. Then we turn to the best-reply matching (BRM) approach developed by Droste, Kosfeld & Voorneveld (2003) for games in normal form. In a BRM equilibrium, the probability assigned by a player to a pure strategy is linked to the number of times this strategy is a best reply to the other players’ played strategies. We extend this logic to signaling games in extensive form and apply the new obtained concept to Akerlof’s model. This new concept leads to a very simple rule of behaviour, which is consistent, different from the Bayesian equilibrium behaviour, different from Akerlof’s result, and can be socially efficient.

Suggested Citation

  • Gisèle Umbhauer, 2007. "Best-reply matching in Akerlof’s market for lemons," Working Papers of BETA 2007-10, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  • Handle: RePEc:ulp:sbbeta:2007-10
    as

    Download full text from publisher

    File URL: http://beta.u-strasbg.fr/WP/2007/2007-10.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    best-reply matching; experience goods; signalling game; mixed Perfect Bayesian Equilibrium; extensive form; normal form.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ulp:sbbeta:2007-10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bestrfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.