Transparency and Distressed Sales Under Asymmetric Information

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

Fuchs, William Martin and Oery, Aniko and Skrzypacz, Andrzej, Transparency and Distressed Sales Under Asymmetric Information (February 10, 2015). Cowles Foundation Discussion Paper No. 1986, Stanford University Graduate School of Business Research Paper No. 15-14, Available at SSRN: https://ssrn.com/abstract=2563007 or http://dx.doi.org/10.2139/ssrn.2563007