Transparency and Distressed Sales Under Asymmetric Information

43 Pages Posted: 11 Feb 2015

See all articles by William Fuchs

William Fuchs

University of Texas at Austin - Department of Finance; Universidad Carlos III de Madrid - Department of Economics

Aniko Oery

Yale University - Cowles Foundation

Andrzej Skrzypacz

Stanford University - Stanford Graduate School of Business

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

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

William Martin Fuchs

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain

Aniko Oery (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Andrzej Skrzypacz

Stanford University - Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-736-0987 (Phone)
650-725-9932 (Fax)

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