(Non)Exclusive Contracting Under Adverse Selection: An Experiment

75 Pages Posted: 18 Sep 2017 Last revised: 27 Oct 2018

See all articles by Wanda Mimra

Wanda Mimra

Catholic University of Lille - IESEG School of Management

Christian Waibel

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Date Written: May 2018

Abstract

The performance of markets with hidden information is of central importance in microeconomic theory. We present the results of a comprehensive experiment that distinguishes between the two fundamental forms of hidden information, private and common values, in different contracting environments. Contracting environments vary in terms of the market power that the screening market side has over the trades of its privately informed customers, ranging from monopoly to nonexclusive competition. The degree of equilibrium play is striking, particularly in the complex cases of common values. Under private values, competition ensures efficient trades. Under common values, low-type buyers are to a large extent excluded under nonexclusive competition, whereas such types' trades are only distorted under exclusive competition. This leads to a significantly higher market surplus under exclusive competition in comparison to nonexclusive competition under common values.

Keywords: Adverse selection, private and common values, nonexclusive competition

JEL Classification: D82, L10, C92

Suggested Citation

Mimra, Wanda and Waibel, Christian, (Non)Exclusive Contracting Under Adverse Selection: An Experiment (May 2018). Available at SSRN: https://ssrn.com/abstract=3037097 or http://dx.doi.org/10.2139/ssrn.3037097

Wanda Mimra (Contact Author)

Catholic University of Lille - IESEG School of Management ( email )

Socle de la Grande Arche
1 Parvis de la Defense
Puteaux, Paris 92800
France

Christian Waibel

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

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