IDEAS home Printed from
   My bibliography  Save this paper

Competitive Search Markets with Adverse Selection


  • Inderst, Roman

    () (Sonderforschungsbereich 504)

  • Müller, Holger M.

    () (Department of Economics, University of Mannheim)


In a seminal paper, Rothschild and Stiglitz (1976) show that competitive markets with incomplete information in which firms offer contracts to screen privately informed agents may have no equilibrium. In this paper, we argue that frictions in the form of delay or congestion provide a natural solution to the nonexistence problem. To show this, we extend the concept of competitive search equilibrium by Moen (1997) to markets with incomplete information. Our main result is that a separating equilibrium always exists. In particular, the separating equilibrium cannot be broken by a profitable pooling offer as the latter attracts only the lowest types in the population due to the ensuing congestion.

Suggested Citation

  • Inderst, Roman & Müller, Holger M., 1999. "Competitive Search Markets with Adverse Selection," Sonderforschungsbereich 504 Publications 99-52, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  • Handle: RePEc:xrs:sfbmaa:99-52
    Note: Financial Support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Piero Gottardi & Sarah Auster, 2016. "Competing Mechanisms in Markets for Lemons," 2016 Meeting Papers 264, Society for Economic Dynamics.
    2. Moen, Espen R, 2002. "Do Good Workers Hurt Bad Workers - or is it the Other Way Around?," CEPR Discussion Papers 3471, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    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:xrs:sfbmaa:99-52. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carsten Schmidt). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.