Transparency and Distressed Sales Under Asymmetric Information
Cowles Foundation Discussion Paper No. 1986
Stanford University Graduate School of Business Research Paper No. 15-14
43 Pages Posted: 11 Feb 2015
Date Written: February 10, 2015
Abstract
We analyze price transparency in a dynamic market with private information and correlated values. Uninformed buyers compete inter- and intra-temporarily for a good sold by an informed seller suffering a liquidity shock. We contrast public versus private price offers. In a two-period case all equilibria with private offers have more trade than any equilibrium with public offers; under some additional conditions we show Pareto-dominance of the private-offers equilibria. If a failure to trade by the deadline results in an efficiency loss, public offers can induce a market breakdown before the deadline, while trade never stops with private offers.
Keywords: Adverse selection, Transparency, Distress, Market design, Volume
JEL Classification: D82, G14, G18
Suggested Citation: Suggested Citation