Abstract

http://ssrn.com/abstract=1525465
 
 

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Non-Exclusive Competition in the Market for Lemons


Andrea Attar


IDEI, Université de Toulouse I.; University of Roma II, Tor Vergata

Thomas Mariotti


University of Toulouse I

Francois Salanie


National Institute for Agricultural Research (INRA)

December 18, 2009

CEIS Working Paper No. 159

Abstract:     
We consider an exchange economy in which a seller can trade an endowment of a divisible good whose quality she privately knows. Buyers compete in menus of non-exclusive contracts, so that the seller may choose to trade with several buyers. In this context, we show that an equilibrium always exists and that aggregate equilibrium allocations are generically unique. Although the good ordered by the seller is divisible, aggregate equilibrium allocations exhibit no fractional trades. In equilibrium, goods of relatively low quality are traded at the same price, while goods of higher quality may end up not being traded at all if the adverse selection problem is severe. This provides a novel strategic foundation for Akerlof's (1970) results, which contrasts with standard competitive screening models postulating enforceability of exclusive contracts. Latent contracts that are issued but not traded in equilibrium turn out to be an essential feature of our construction.

Number of Pages in PDF File: 71

Keywords: Adverse Selection, Competing Mechanisms, Non-Exclusivity

JEL Classification: D43, D82, D86

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Date posted: December 18, 2009  

Suggested Citation

Attar, Andrea and Mariotti , Thomas and Salanie, Francois, Non-Exclusive Competition in the Market for Lemons (December 18, 2009). CEIS Working Paper No. 159. Available at SSRN: http://ssrn.com/abstract=1525465 or http://dx.doi.org/10.2139/ssrn.1525465

Contact Information

Andrea Attar (Contact Author)
IDEI, Université de Toulouse I. ( email )
21, allée de Brienne
Toulouse, F 31000
France
+33 5 61128578 (Phone)
University of Roma II, Tor Vergata
2 Via Columbia
00100 Rome
Italy
Thomas Mariotti
University of Toulouse I ( email )
Toulouse, 31000
France
Francois Salanie
National Institute for Agricultural Research (INRA) ( email )
21, Allee de Brienne
31000 Toulouse
France
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